Retail sector in Scotland weathering the storm – R3

The retail sector in Scotland has the second-lowest level of firms at higher than normal risk of insolvency of anywhere in the UK, according to the latest research from insolvency and restructuring trade body R3.

Companies with a higher than average risk of becoming insolvent in the next 12 months make up just under a quarter (24 per cent) of all Scottish retail firms, against a UK average of 25.9 per cent. Both figures are the highest so far this year.

The transport and haulage sector put in a similarly impressive performance, with 24.1 per cent of companies in this category at higher than usual risk of insolvency, the second-lowest of anywhere in the UK. This figure has however risen slightly since the start of the year, when it was 22.9 per cent. The UK average for transport and haulage companies in September was 34.1 per cent, a full 10 percentage points higher than the Scottish result.

Once more, Scotland had the lowest proportion of firms across all sectors at higher than normal risk of insolvency of anywhere in the UK, at 23.1 per cent (UK average: 29 per cent). This has grown by 3.6 percentage points since January, when under a fifth (19.6 per cent) of Scottish firms fell into the negative band, reflecting a broader trend across the UK towards higher levels of companies judged at greater than average risk of insolvency.

Tim Cooper, Chair of R3 in Scotland and a partner at Addleshaw Goddard in Edinburgh, said: “Transport and retail are two sectors which are quite closely linked, with logistics companies adapting to many retailers’ demands for ‘just-in-time’ stock updates, to keep store displays fresh and to ensure that shoppers always have access to the latest trends. The Scottish Retail Consortium’s research shows that like-for-like sales in August 2017 were up by 1.9% year on year in Scotland, but only by 1.3 per cent across the UK as a whole.

“The growth of online retail has also stoked demand for transport and haulage companies’ services, with new firms springing up to fill gaps in the market.

“It’s worth sounding a warning, however, as much of the spending in retailers is funded through consumer debt, which cannot continue to grow indefinitely. Store owners, whether they sell items on the high street or online, need to start thinking now about how they can retool their business model to cope with a downturn in demand, or they risk being caught on the back foot.

“It’s good to hear that, out of everywhere in the UK, Scotland still has the lowest proportion of firms across all sectors at higher than average risk of insolvency, but it’s also worth pointing out that this figure has risen throughout 2017. With so much uncertainty in the air, complacency is a risk no company can afford, and seeking early advice from a qualified professional may well turn out to be a highly worthwhile investment.”

The figures are from R3’s latest insolvency risk tracker. The tracker is compiled using Bureau van Dijk’s ‘Fame’ database and measures companies’ balances sheets, director track records and other information to work out their likelihood of survival over the next 12 months.