Quarter of UK retailers vulnerable to interest rates rises in 2018
Many large UK retailers will struggle to meet higher interest payments this year if the Bank of England raises rates, according to a study carried out by Company Watch.
The study of over 1600 large UK retail companies with total assets of £5m found that 24.1% of the companies are 25 times more likely to suffer financial distress this year.
The report also found that 26.6% of the companies surveyed were lossmaking, especially in the household retailers such as Mamas & Papas, Paperchase, Forever21, Thomas Pink, Hobbs Fashion.
Some of the biggest retailers in the country like Maplin, which recently collapsed, and Jaeger Limited failed to pass the Company Watch financial strength test.
This situation could be aggravated by the base rate rises this year which are speculated to be two, one in May and another one at the end of the year (November or December).
According to the report if the rates were to double to 1% this year, the loss making retailers would increase to 30.3% (from 26.6%).
Although these figures do not relate to all the UK retailers, the report found that some are financially strong and have passed the Company Watch test. Some of these companies are Next plc, Burberry, Moss Bros and Patisserie Valerie.
CEO of Company Watch, Jo Kettner said, “It’s no secret that bank base rates are set to rise this year at least once and maybe twice. For many of the household name retailers that are loss-making and already in our Warning Area, a rise in the cost of debt this year could well be the final straw.
“Retail suppliers and trade creditors are monitoring this situation closely and will be looking for signs that appropriate action is being taken by retailers to prepare for higher interest rates,” he concluded.
The first months of 2018 have been hard on the retail sector in general. In January this year the post-Christmas sales period which is usually a strong one was disappointing with weaker sales data than what was expected. And with the heavy snowfalls, retail sales have remained depressed at the end of February and the start of March.