Consumer durables and retail in United Kingdom

Crédito y Caucións short term outlook for the consumer durables/retail sector is still mixed. Analysts generally predict growth in retail spend of approximately 2% in 2011.
Analisis Credito y Caución
Madrid - 24-nov-2010

What is the current trend in insolvencies?

The relatively low level of insolvencies within this sector in the UK has been one of the positive elements of the recessionary climate over the past 18 months. That said, it has not been without its failures, and particular sectors and subsectors, as furniture and mid-market clothing retailers, have borne the brunt of much of the pain. To give some impression of the profile and scope of retail insolvencies since 2007, the following table shows the number of medium or large retail businesses that failed during that period.

According to PricewaterhouseCoopers, retail insolvencies fell over 26% in the second quarter of 2010, to their lowest level since Q4 of 2007. Equifax reported that, although the total number of company failures fell 13.2% year-on-year in August, the number of retailers failing decreased only 9.6% year-on-year. When compared to July 2010 they had in fact risen 3.2%.

Relative to the rest of the UK economy, however, retailers have accounted for just 5.5% of corporate insolvencies in 2010 and it is in this context that we should look at the outlook for the next six months.

What is Crédito y Caucións short term outlook for the consumer durables/retail sector?

Despite the positives that can be drawn from these statistics, the outlook is still clearly mixed and analysts are generally predicting growth in retail spend of approximately 2% in 2011. Crédito y Caución believes that retailers recovery from recession could fall short of these expectations, as public sector cuts, tax rises and fears over job prospects and earnings growth force shoppers to tighten their purse strings yet again. This will make the market even more competitive and differentiation yet more important.

The businesses facing particular challenges are those with a significant bias towards UK regions worst affected by public sector cuts, such as the North East and South Wales, and those selling big ticket consumer durable items and home improvement products.

What is the Crédito y Caución approach to the sector?

Our aim is to identify those risks that are behind the current negative trends, whether those are trends in performance or in a market position that are vulnerable to any of the threats mentioned in this report.

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