Another week and more bad news for the economy in the form of poor retail sales figures and record levels of Government borrowing – something that will obviously be addressed in the upcoming budget.
Retail sales fell by 2% in the three months to September 2022, which continues the downward trend seen since summer 2021 with falls recorded across all areas. Food sales were down by 1.8% in September 2022, which leaves them 3.2% below their pre-coronavirus levels in February 2020. Both non-food and automotive fuel volumes were also lower and whilst online sales also fell, they remain significantly above February 2020 levels suggesting that the move to online shopping is continuing.
We fear that none of this makes happy reading for traditional retail businesses. Whilst the ONS cautioned that the State Funeral of Her Majesty Queen Elizabeth II meant there was one day less of trading, are we starting to see the impact on discretionary spending as consumers reduce their spending in general and perhaps move to cheaper brands as they juggle the monthly budget?
Whilst many businesses have established a strong online presence in the last few years we are concerned that the majority of sales online are with a few major names.
What should traditional retail businesses be doing to protect their market share? Well, being reactive and moving with trends is vitally important, as is the ability to keep a very close eye on margins. The easy option, adopted by many when faced with falling sales, is to cut prices but this is a shortcut to disaster if not coupled with reduced costs – something that is increasingly difficult to achieve given the cost of living crisis we are all currently facing.
One area where there may be savings to be made is with property cost. We have worked with some businesses where we have been able to renegotiate lease terms through demonstrating to the landlord that a variation to the original terms will ensure the tenant is able to remain in situ for the duration of their lease. Given the pressures facing all retailers a wise landlord will be happier taking a reduction in rent rather than facing a long void period with little chance of finding a replacement tenant in this economic climate.
We would like to hear what people are seeing in their own businesses and domestic lives. Are you reducing the number of meals out or buying cheaper wine?
So what should struggling businesses do to improve their viability?
The answer is simple – act now.
The directors of SKSi look at a formal insolvency process as the last resort – not the first. It is their long held belief – borne out with proven experience – that seeking advice at the first sign of financial pressures will lead to a more favourable outcome. Conversely, doing nothing and hoping the problem will go away is far more likely to lead to a critical outcome and insolvency.
If you are involved with, or know of any business that is struggling financially we suggest that you talk to us. We urge every business owner/director that is worried to act decisively and seek independent professional advice before it is too late and that is why we are always available for an initial zero cost assessment which can be arranged by contacting Alistair Dickson.