Newly released figures from the Insolvency Service show that a higher rate of UK insolvencies over the 12 months have been driven by pressures in consumer facing industries such as leisure, hospitality and retail. However, research suggests the worst might now be in the rear-view mirror, with an easing now expected to follow as the industry works through some of its core challenges.
The retail, leisure and hospitality industries have experienced one of their toughest trading environments to date over the past year. Pressures seem to have come from all angles, with high inflation and staffing issues contributing to a higher rate of collapse.
According to the data, insolvencies in the accommodation and food services industry jumped by a massive 48% in the 12 months to Q3 2023. Insolvencies in wholesale and retail were even more acute, rising by 52% over the same period.
There are signs that a valve could be about to open, however. As myriad challenges came to a head this year, following three years of intense disruption, analysts are finally expecting the crunch to lessen.
“Post-lockdown hopes for a rebound were high, with the anticipation that pent up demand would be unleashed,” Robyn Duffy, senior analyst for consumer markets at leading audit, tax and consulting firm RSM UK, said.
“But high inflation sucked that demand out of the market and caused an increase in input costs across every area of the business, from raw materials to utility and fuels bills. These industries have also struggled to bring staff back into the workforce, which has led to significant wage rises in a bid to keep up with competitors and secure talent.
“But if we look at the data, we can expect that a peak in insolvencies has now been reached across both sectors. RSM’s insolvency predictor model implies we’ve reached the tip of the iceberg and that insolvencies should fall during the remainder of 2023 and over the course of next year. This is promising news for these sectors and indicates that the distress we’ve seen, particularly amongst smaller businesses, is finally beginning to ease.”
The industry is still far from out of the woods, however. The figures follow Monday’s news that the number of licenced premises in Britain has now fallen below 100,000, marking a 31% decline in the two decades since 2003.
Hospitality has seen “seismic changes” during that time, UK Hospitality said. In recent years, this has been “exacerbated by soaring inflation, rising energy bills and workforce challenges”.
In the retail sector meanwhile, many businesses have made significant efforts to drive down excess stock throughout 2023, which will have helped ease pressures on balance sheets. For leisure and hospitality operators, the pain is “a little more acute” RSM said, with food prices coming down more slowly. Though this trajectory is expected to continue.
“The outlook for demand is also looking more promising with consumers’ real earnings in growth, interest rates looking likely to have reached their peak and prices coming back down to more normal levels. There are certainly reasons to feel optimistic in both sectors at present,” Duffy concluded.