Howard Archer, chief UK and European economist for IHS Global Insight, said that, while retailers might enjoy a brief fillip from bargain seekers this week, this was not set to last as cash-strapped consumers took their pick of heavily discounted goods that would last them through tougher conditions to come.
Archer said: “We suspect that more people will likely to be more careful in buying – or reluctant to buy – items that they don’t really want or need in the sales.
“This means that interest in the sales could fall away pretty quickly once the best of the bargains have gone. This would put pressure on retailers to cut prices even more, thereby further hurting their margins.”
The UK high street lost several more well-known names during 2011, with predictions of worse to come in the year ahead.
As was expected, 2011 saw marginally more companies put into administration than 2010, and that year-on-year increase is likely to continue in 2012, according to experts.
Mike Jervis, a corporate recovery expert at PricewaterhouseCoopers, said: “Our prediction is that insolvency will go up next year. The consumer is more strapped for cash now than in 2008 and the public sector cuts will also start to bite.
“As well as that, companies with highly leveraged balance sheets will need to refinance large amounts of debts entered into in the height of the market in 2007.”
More retail casualties are expected to follow as early as this week, as retailers battle a brutal downturn and face a major hurdle of having to pay a first-quarter rent bill on Christmas Day.
A number of retailers are currently on the critical list, burdened by debt, high rents and business rates and the prospect of decreasing sales as recession and public sector job cuts continue to take their toll.
Following the calling in of administrators to budget lingerie retailer La Senza on 23 December, another private equity-owned retailer, Past Times, also filed an intention to appoint administrators. It is expected that Past Times will be put into administration next week unless a buyer is found.
Epic Private Equity, owner of the loss-making retro-themed gift chain with more than 100 stores, is understood to be working to restructure the firm with KPMG. Last year the retailer made a loss of £1.5m on turnover of £46.5m.
Epic, which also acquired tea specialist Whittard of Chelsea in a pre-pack in December 2008, bought Past Times out of administration for £7.75m in December 2005.
Listed firm Blacks Leisure also faces being put into administration as accountancy firm KPMG attempts to put together a pre-pack acquisition. The move came after its biggest shareholder, Mike Ashley’s Sports Direct, walked away from buy-out talks. A number of potential bidders signalled their interest in parts of the 300-plus retail chain in the days before Christmas, including Edinburgh Woollen Mill, which recently snapped up 58 Jane Norman stores after the fashion chain fell into administration.
Last week the struggling entertainment retailer HMV Group admitted it faced enacting desperate measures to keep its doors open. Simon Fox, the firm’s chief executive, told investors the group might have to sell off its only profitable business, HMV Live, in order to reduce its debt level and bolster its finances, adding that he hoped to sell the concerts business for more than the £60m it paid for it a couple of years ago.
Having unveiled a slump in sales and profits for its most recent half year, HMV said that depressed trading conditions had added an extra £12m to the firm’s net debt, which rose to £163.7m as of the end of October. The retailer posted a first-half pre-tax loss of £45.7m while revenue fell to £364.9m from £442.7m in the same period last year.
The board of Clinton Cards also faces the prospect of a tough investor meeting next week after the sudden departure of its finance director, Paul Salador, in the days leading up to Christmas. Its recently installed chief executive, former Starbucks UK chief Darcy Willson-Rymer, was able to report in November that the troubled retailer’s restructuring was making progress, albeit third-quarter sales had slumped a further 2.4 per cent despite slashing prices at Hallowe’en. It reported a pre-tax loss of £10.6m for the year to the end of July, compared with profits the previous year of just under £12m.
Sportswear retailer JJB last month struggled to reassure investors that it had sufficient funding in place to keep it solvent as it revealed a worse-than-expected third quarter performance.
The group, which has been forced to close stores and strike a rescue deal with its landlords in the face of crippling competition, said pre-tax losses had widened to £66.5m in the 26 weeks to the end of July from £24m a year ago.
The company, which counts Microsoft founder Bill Gates among its key shareholders, ended the period with net funds of £17m, having raised £96.5m over the past year to fund its turnaround plan.
Even comparatively healthy retailers are retrenching, which will only add to the high street’s gloomy outlook in coming months. Electronics retailer Dixons, travel agent Thomas Cook, chocolatier Thorntons and fashion conglomerate Arcadia are all set to close hundreds of UK outlets this year.
Property firm Jones Lang Lasalle has predicted that retailers could close up to half of their shops in the next three years as they renew shop leases struck in the 1980s and 1990s.