Cash-strapped retailers face collapse over cost of Christmas stock

Ernst & Young says that suppliers, spooked by the spate of retail failures, may cut back their lines of credit to struggling retailers

The Observer, Sunday 10 July 2011


Cost of buying Christmas stock could force ailing retilers to collapse, according to a study by accountant Ernst & Young. Photograph Frank Baron for the Guardian

The cost of stocking the shelves for Christmas may force the collapse of several more high street retailers, a leading accountancy firm has warned.

Ernst & Young said retailers who had been "hanging on in there" since the 2008-09 recession might not be able to build up enough cash to pay for extra stock for the crucial festive season as well as the rent due at the next quarter-day in September.

"We will continue to see a shakeout of those struggling with rising costs, wage inflation and falling consumer spending," said Adam Hudson, Ernst & Young's head of restructuring. "[They] will find it very hard to make enough cash to invest in Christmas. If retailers can't get the inventory, they won't make money," he said. "Some of them only really make money at Christmas."

Hudson added that suppliers, spooked by the recent spate of retail failures, might cut back their lines of credit to struggling retailers.

Research published last week showed retail chains were closing stores at a rate of about 20 a day. Discount clothing chain TJ Hughes, Focus DIY, Habitat and fashion chain Jane Norman are among the chains to have failed over the past two months.

Ernst & Young research shows retailers have issued 26 profits warnings so far this year, more than the number issued over the whole of 2010.

http://www.guardian.co.uk/business/2011 ... w-collapse