2020 saw nearly 9,000 multiple retailer units pass through a CVA, administration or liquidation across the whole retail market, double that seen in each of the previous two years. Retail warehousing continued to show its robustness, with the weight of that insolvency activity much more heavily skewed toward high streets and shopping centres than it has been the out-of-town market.

The positive performance of some of the more traditional out-of-town retailers has played its part, particularly the bulky goods and grocery operators that were deemed as essential and allowed to trade throughout the pandemic. Much more of the high-street and shopping centre market was forced to close during 2020 and this had a greater impact on retailers ability to remain solvent in these markets.

Furthermore, retail park footfall not only performed consistently better throughout the pandemic but also recovered much quicker post lockdowns. Clearly, the ability to social distance across large retail parks was an important factor in the public’s consciousness, with retail warehousing’s strong footfall performance in comparison to the high-street, a result of greater perceived Covid-safety.

Insolvency by asset class

Analysing the impact by asset class therefore, it is the high street that has accounted for the largest slice of insolvent activity, high street stores (40%, 3,522 units) and high street shopping centres (23%, 2,019 units) collectively accounting for 63% of all insolvency activity in 2020. This compares to 28% of units for the out-of-town market, with a third of those seeing no disruption in trade and no reduction in their rental income, (see chart, below). More significantly, insolvency-related closures have been much more pronounced in the in-town market than they have out-of-town. 2020 has seen 1,037 closures in the retail warehouse sector. High street and high street shopping centre units have seen 2,818 closures, equating to a third of all insolvency activity in total.

Insolvency by sector

The fact that the high-street has been comparatively more affected by retailer failures than is true of other retail segments, is largely due to their greater exposure to mid-market fashion. Fashion operators accounted for as much as 57% of units to pass through an insolvency process in 2020 (see chart, below). The Arcadia and Debenhams administrations led to the largest proportion of closures in both the in-town and out-of-town markets. However, of Arcadia’s c.6m square feet of retail space, the in-town market accounted for more than four-fifths, whilst conversely, only 18% of Arcadia stores were located out-of-town, predominately through their ‘Outfit’ brand. This goes some way to explaining the difference in fortunes between the two asset classes.

Overall, it is fair to say all sectors have seen an increase in insolvency activity in 2020. However, with the bulk of the activity in 2020 a result of the struggling fashion and leisure sectors, the sectors closed and unable to trade for the longest, it is the high-street that has suffered most in terms of the insolvency we saw last year.

With the recent news that the rent moratorium for retailers has been extended until 25 March 2022 – which gives retail tenants protection from 'aggressive' actions by landlords, such as eviction or seizure of stock during the pandemic – there has been far less insolvency activity in 2021 than we were seeing this time last year when we were in the eye of the Covid-19 storm.

Only time will tell whether the pandemic merely accelerated the journey to an insolvency practice for retailers who, in reality, were already struggling financially. The ebb and flow of retailer fortunes is nothing new, and we will likely see a further raft of retailer failures when the moratorium ends toward the end of Q1 next year, whilst at the same time, a number of operators continue to adapt much better to the changing retailer landscape and thrive going forward.

What is clear is that whilst omnichannel retail has become vital for the existence of many retailers, the physical store still remains a fundamental part of an operators success. Those retailers that fail to get the balance right are often those that struggle. The question perhaps isn’t whether physical retail is necessary or not, but more how much is needed, with ‘rightsizing’ becoming a feature of most retail-related agendas.

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