Irish retailers fear poorly timed budget as insolvencies rise

Retail insolvencies in the Republic of Ireland have increased by 46 percent on the same period last year and for many, the debt burden has now become unsustainable according to Euler Hermes.

Figures within the latest Euler Hermes UK and Ireland Risk Bulletin show that by the end of the third quarter, the number of insolvencies recorded had already surpassed the total number of failures for the whole of 2011. “The retail sector has been hit from every angle with little or no relief,” said Mike Buggy, Risk Underwriting Manager for the Republic of Ireland.

“While no retailers have remained immune to the difficulties faced, it has been the SMEs that have been hardest hit. Depressed consumer sentiment has led to falling sales, while continued high unemployment and a growing online threat have created a very distressed environment for many retailers, not helped by an extended run of poor weather during key trading periods.”

The Risk Bulletin identifies such issues as upward only rent review clauses and high local authority charges as compounding an already difficult situation, leading to a marked increase in the use of examinerships and receiverships in recent months as a mechanism to exit onerous leases and/or restructure unsustainable debt. Recent high profile examples include Atlantic Homecare and Clerys.

“Christmas trading will be a key indicator for these businesses and their future prospects,” Buggy said. “The timing of the budget announcement just before Christmas at a time when many retailers are hoping to achieve a third or more of their annual sales is potentially very damaging.”

Applications for credit insurance cover have increased year to date indicating greater activity in the broader economy, though the number of applications specific to the retail sector fell in both August and September.

The Risk Bulletin also states that the pricing strategies among the multiples are having a detrimental knock-on effect on primary and secondary food processors. A difficult situation is being made worse by rising costs of feed, protein and energy, “Recent insolvencies have highlighted the inability to pass on rising input costs as a major contributor for their downfall,” Buggy concluded.

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