Retail administrations up 30% in Q1

Sixty retail companies fell into administration in the first quarter of 2011, an increase of 30 per cent on the previous three-month period, according to a report.

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Figures released today from accountancy firm Deloitte show the number was up from the 46 businesses in the fourth quarter of 2010. 

Lee Manning, reorganisation services partner at Deloitte, said it was to be expected that the retail sector would be one of the worst affected.

He added, ‘The sector is heavily reliant on buoyant consumer spending and the increase in VAT and the government’s austerity measures are undoubtedly hitting the sector hard.

‘In particular, smaller retailers are likely to be feeling the pinch more so than ever, as they often have little grounds to negotiate flexible credit terms with suppliers and may find it difficult to raise funding.’

The report comes after private equity firm Lion Capital confirmed a significant cash injection into fashion retailer All Saints today to prevent it from entering administration. (Click here to read in full)

Meanwhile, do-it-yourself retailer Focus DIY also confirmed it has appointed Ernst & Young as administrators for its portfolio of 178 stores today.

Deloitte partner Manning said the trend being witnessed in the market is the result of HM Revenue & Customs (HMRC) taking a tougher stance on lost revenue.

He added, ‘During the economic downturn, companies experiencing financial difficulty were able to rely on low interest rates and HMRC’s favourable Time to Pay scheme in order to make ends meet.

‘However, as HMRC attempts to recoup lost revenue, we are likely to see a more hardened approach being taken. We have already seen a decline in the acceptance of CVAs, often used as a last resort by companies attempting to avoid administration.

‘Whilst the retail sector has fared the worst this quarter, this trend is very much in line with the overall direction of the market.

‘Overall, the first quarter of 2011 saw an increase of 21 per cent on the previous quarter, with a total of 557 companies falling into administration compared with 438 in Q410. These figures indicate that we are not out of the woods yet.’

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