How has retailer insolvency fared in 2020 in light of the pandemic?

This year a total of 4,158 retail and leisure units have been through an insolvency procedure up to the beginning of August, spread across 71 brand fascias and 39 holding companies. This compares to 4,283 units, 45 fascias and 38 holding companies the previous year.

The results suggest 2020 has thus far experienced insolvency activity on a par with the overall levels seen in 2019 however, with a quarter of the year remaining it is likely the overall volume of insolvency activity will eclipse the previous year in terms of the number of units that will be affected by one of the three procedures.

Interestingly we have seen a 58% increase in the number of brand fascia’s that have experienced insolvency in 2020 than in the previous 12 months. This highlights the recent emergence of a number of multi-fascia brands that have been met with financial difficulty, particularly in the leisure market. The Casual Dining Group’s recent administration, for example, covers five fascia’s including their Bella Italia, Café Rouge and Las Iguanas brands.

Which sectors have seen the worst of the insolvency activity?

Fashion and comparison goods retail were the sectors with the most insolvency activity in 2019, respectively accounting for 1,977 units (46%) and 2,070 units (48%) of all those that underwent either a CVA, administration or liquidation in that year. It is a similar story in 2020 with fashion (1,851 units, 45%) and comparison goods retailing (1,417 units, 34%) remaining the most prominent sectors to see insolvency activity so far. However, leisure now accounts for just over a fifth (21%) of all units to have entered an insolvency process in 2020, compared to only 6% the previous year, accounting for 857 units in 2020 compared to only and 263 units in 2019 (see below chart).

With much of the leisure sector unable to trade at all during the lockdown and the sector seemingly being the last to see some return in consumer traffic, it is unsurprising the sector has seen an increase in brands facing financial difficulty, particularly as the industry is service-led and much less able to serve consumers online.

Conversely, the convenience sector sees a very low proportion of units subject to an insolvency procedure in 2020 (less than 1%). This is again unsurprising when supermarket and other food store operators were considered essential and allowed to remain open and trading after the government imposed sanctions on store closures in March. These operators recorded a 10.4% increase in sales in the following month in the early panic buying phase (ONS). Many have been reporting above-average trading figures ever since.

2020 sees an increase in the prevalence of administrations as many operators seek outside investment to save their businesses.

Administration has been the insolvency procedure most prevalent thus far in 2020, accounting for 3,168 and 78% of all insolvent units. The previous year this figure stood at 2,224 and 52%. Some degree of comfort can be taken from the fact that so far 2020 has not led to as many stores being liquidated as the year previous (141 units, 3% in 2020 versus 1,119 units and 26% in 2019). However, 2019 was skewed by the loss of a few brands with a lot of stores. Thomas Cook provides the most poignant example accounting for nearly 600 units, all of which were acquired by Hayes Travel and thus very quickly re-let. Many of the retailers to enter administration in 2020 will be still be looking for buyers so it remains to be seen how many stores or indeed brands will be lost altogether through liquidation.

Nevertheless, thus far 1,091 stores have closed as a result of an insolvency procedure in 2020, representing 26% of those that have passed through one of the three insolvency procedures. This compares favourably, at least for the time being, to the figures recorded for 2019 where 1,921 stores closed, representing 45% of those that had passed through a CVA, administration or liquidation that year.

In 2020, more units have been subject to a rent reduction, albeit marginally than was seen in 2019 (621 representing 15% versus 550 and 13% respectively). However, more units in the current year remain trading and honouring their rental agreement (1,646, 59%) than was the case by the end of 2019 (1,460, 42%).

Before Covid-19, the retail and leisure industry was already seeing a structural change in terms of rents. This has been compounded further by the pandemic where a reduction or complete lack of trade has meant many more retail operators have sought to reduce costs more quickly through an insolvency procedure, to ultimately to lower their rent roll or streamlining their portfolio of stores. How much worse 2020 will prove to be in this regard compared to the previous year due to the added pressure of a global pandemic remains to be seen, however, we almost certainly haven’t seen the last retail operator to pass through an insolvency process.

_{Read the articles within Spotlight: UK Retail Outlook Report  below.}