Latest insolvency data masks mounting pressures on UK retail sector

The apparent stability in UK retail insolvencies masks a potential crisis for the sector, as rising labour costs and endemic shoplifting threaten to push more fashion retailers towards restructuring in early 2025, industry experts warn.

Data released today shows retail trade insolvencies remained virtually unchanged, with 2,089 businesses failing in the year to September 2024, compared to 2,101 in the previous twelve months. Monthly figures similarly showed minimal movement, with 138 insolvencies in September versus 137 in August.

However, the fashion retail sector faces unprecedented headwinds following the Chancellor's recent Budget announcement. The combination of increased employers' National Insurance contributions and a significant rise in the National Minimum Wage is expected to hit fashion retailers particularly hard, given their traditionally high staffing requirements across store networks.

Gordon Thomson, restructuring partner at leading audit, tax and consulting firm RSM UK, said: "While retail insolvencies were flat in the lead up to the Budget, a wave of distress is expected following the Chancellor's increase in employers' National Insurance contributions and National Minimum Wage, due to the vast number of people employed in the industry. The current statistics may be the calm before the storm as additional costs put further pressure on retailers' already-stretched margins, leading to an increased rate of insolvencies in Q1 2025."

"A wave of distress"

The timing could not be more critical for fashion retailers, who typically generate up to 40 per cent of their annual profits during the Golden Quarter. Industry analysts note that disappointing Black Friday sales could prove terminal for businesses already operating on razor-thin margins.

Thomson added: "Consumer confidence has been shaky in the lead up to the Budget, and it's crucial this returns to avoid a disappointing Black Friday and Golden Quarter. Confidence is needed to drive a boost in consumer spending and to the overall UK economy, which saw meagre growth of 0.1% percent in the last quarter."

The sector's challenges are further compounded by an unprecedented surge in retail crime, with the British Retail Consortium reporting that incidents have doubled since 2019. This trend is particularly concerning for fashion retailers, where high-value items are increasingly targeted by organized crime groups.

*"The retail sector is also grappling with increased crime rates, which not only has a devastating impact on margins but also on staff morale," Thomson noted. "The government's promises to tackle shoplifting are more important than ever during this festive period, but that alone won't be enough to revive the sector. Retailers will be holding on to see how the next few months perform, but further support is needed to avoid more having to close their doors for good."

Industry observers point out that while luxury fashion retailers have shown resilience, mid-market players face the greatest risk. The combination of rising operational costs, shrinkage from theft, and potential consumer belt-tightening could prove particularly challenging for this segment, which has already seen several high-profile casualties in recent years.

These pressures come as the sector continues to grapple with the structural shift towards online shopping, requiring substantial investment in digital infrastructure while maintaining costly physical store estates. Analysts suggest that without significant government intervention or a marked improvement in consumer confidence, the current stability in insolvency rates may prove to be temporary.