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Insolvency: Why some sectors suffer more

26 June 2012

Businesses in the retail, construction and real estate sectors are up to three times more likely to go insolvent compared to other sectors such as professional services, according to our Insolvency Predictor.  Why is it that some sectors are suffering more than others in this continued period of economic uncertainty?

Retailers are struggling as consumers are paying down debts rather than spending (apart from around celebrations like the Queen's Jubilee) meaning spending on the high street is down.  And they are getting further squeezed owing to high rents being charged with landlords showing no sympathy to their plight.  As usual London bucks this trend and we have seen record rents being paid for prime spots on Oxford Street, but across the country the High Street continues to be a tough place to do business. Headlines today reported that almost three quarters of high street retailers have Sale or advertising promotions in their shop windows, up from 40% three years ago. Retailers seem to be doing everything they can to increase consumer demand, without much joy.

The BBC today reported that ministers are leading a Make it in Great Britain campaign to promote a manufacturing-led recovery to highlight the sector's £137b annual contribution to the economy. However, not all sectors are performing as well. The construction industry in particular is struggling.  During the time of recession capital expenditure is always reassessed and any plans which can be delayed or cancelled are. With many long-term projects now coming to an end and a decreasing number of new projects in the pipeline due to the pressures of the recession, those who remain in the industry are under price pressure to continue to drive down the margins on the remaining work they have. This is forcing the construction industry to scale back their operations and ultimately stopping them from growing.

Companies need to remember that insolvencies do not happen overnight. They are prompted by a long period of poor performance and a failure to implement well thought out control mechanisms. Woolworth's overnight collapse was in reality a result of over 5 years of poor performance. Many sinking companies make the mistake of relying on growth projections to continue their operations. However, it is easy for costs to spiral and proper planning is essential if you want to remain in the marketplace. Small changes such as better payment practices will also ensure easier access to finance and ultimately allow for better cashflow, allowing companies to grow and contribute to the recovery of the UK economy.

(ws)

This entry was written by Gordon, posted on 26 June 2012 Bookmark the permalink. Follow any comments here with the RSS feed for this post. You can post a comment.

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