The retail sector is bracing for a difficult 2024 due to the ongoing cost of living crisis and rising interest rates. These factors have led to reduced consumer spending and made debt more expensive to manage. The effects are evident in various troubling trends across the industry.

Retail sales in the UK have been on a downward trajectory throughout the year. Over the past 12 months, sales volume dropped by 2.8% compared to 2022, marking the lowest level since 2018. This decline has affected all major sectors, underscoring the widespread impact of high inflation and cost-of-living pressures. Despite a strong start to the year, the immediate outlook for the sector is overshadowed by several factors that hampered performance in 2023. 

Consumer sentiment remains pessimistic for the year ahead, reflected in their reluctance to spend amid persistent inflation and high interest rates. This increases credit risk, making it costly to acquire or refinance debt, likely leading to more business failures. What does this mean for insolvencies in the sector? Let’s explore further.

Sector Overview

Recent data from the Insolvency Service indicates a significant rise in company insolvencies, with an 18% increase in April to 2,177 cases. This included 300 compulsory liquidations, 1,715 creditors’ voluntary liquidations (CVLs), 144 administrations, and 18 company voluntary arrangements (CVAs). The retail sector remains one of the most affected by these figures.

Consumer spending is expected to remain restrained in 2024, forcing retailers to compete vigorously for sales while managing heightened credit risks. High interest rates have made debt expensive, compounded by weak economic growth, pessimistic consumer outlooks, and the repayment of Covid support measures, leading to increased business failures. Insolvencies in the sector have already surpassed pre-Covid levels. 

Geopolitical tensions, such as the Israel-Gaza conflict, and deteriorating economic data further dampen consumer confidence. While monthly insolvency levels may fluctuate, our data indicates that larger employers are increasingly going into administration, which will significantly impact supply chains and the labour market.

With the Bank of England maintaining interest rates at 5.25%, retailers face continued financial pressure. However, if interest rates decrease, retailers could be poised for a rebound. This is supported by an evidenced 46% drop in payment default claims for retailers in Q1, signalling some positive trends despite the sector’s turbulence.

Amid these challenges, there are signs of recovery. Over half of London retailers are planning a return to the high street, with 55% intending to open at least one new physical store this year, according to an American Express study. This reflects a strategic move by retailers to leverage all available channels to build customer connections. It also highlights other key priorities for the year, including enhancing e-commerce capabilities and online marketing efforts, with 34% of London retailers planning to increase their online presence.

Opportunities in the Distressed Market

For business buyers looking to acquire distressed businesses in the retail industry, the challenging economic landscape presents several opportunities:

Expansion into prime locations: With many retailers facing closures, prime retail locations are becoming available. Buyers can capitalise on these opportunities to acquire desirable storefronts at reduced prices, positioning themselves in high-traffic areas previously occupied by struggling businesses.

Utilising existing supply chain & inventory: Distressed retailers often have established supply chains and significant inventory that can be acquired. Buyers can utilize these assets to streamline operations and reduce initial setup costs, allowing for quicker market entry and potential cost savings.

Enhancing omnichannel capabilities: With retailers gearing up to open new brick and mortar stores in London, buyers can look out for businesses that have existing but underutilised online and offline channels. Enhancing these omnichannel capabilities ca n create seamless shopping experiences that leverage both physical stores and e-commerce platforms. This can attract a broader customer base and improve sales efficiency.

£1 Billion Invested into Oxford Street’s Revamp

A £1 billion investment boom is set to rejuvenate Oxford Street, restoring it as Europe’s top shopping destination. Global brands are now vying for space along the West End’s retail corridor, driven by significant post-pandemic improvements.

Less than a year ago, Oxford Street was criticised for its many vacant properties and proliferation of candy stores. Now, major redevelopment projects are transforming former Debenhams and House of Fraser stores into modern office spaces with retail fronts, costing £330 million.

Notable brands have returned, including HMV, Kurt Geiger, Paris Saint-Germain, and the US National Basketball Association. Upcoming attractions include Abercrombie & Fitch’s new store, the Moco Museum, and Ikea’s first West End location at the former Topshop site, set to open in spring 2025. These opportunities make Oxford Street an attractive prospect for business buyers looking to invest in a revitalised and bustling retail environment.

Tesco Urges Suppliers to Invest in Expanding Its Retail Media Network

Tesco has urged its suppliers to invest heavily in expanding its retail media network, predicting that digital advertising will surpass TV by the end of 2025.

At an IGD event in London, Tesco outlined plans to install 6,000 digital screens in stores by year-end and roll out next-gen handheld scanners using Dunnhumby data and AI, targeting shoppers with hyper-personalised ads.

This initiative, including the launch of hyper-personalised Clubcard Challenges, aims to create a more personalised shopping experience and expand localised product ranges across the UK.

Tesco’s digital screen network will become Europe’s largest, having grown from 400 to 1,800 screens since March. Experts predict global retail media ad spending will increase by nearly $100 billion by 2025, exceeding TV ad spend.

A supplier noted Tesco’s focus on personalising the shopping experience through the Clubcard app and in-store enhancements. Another emphasised Tesco’s goal to lead in retail media and digitalization, leveraging Dunnhumby and Clubcard to outpace competitors.

Tesco’s advanced scan-and-shop technology will target offers based on shoppers’ in-store locations, providing higher ROI than traditional advertising methods and impact the shoppers’ in-store experience dramatically. 

To discover more about distressed retail businesses, assets for sale, and promising acquisition opportunities, stay tuned to Administration List. Our platform can help you grow your position in the market significantly.