Profit warnings from listed retailers double as pressures build
Retailers such as Debenhams, Moss Bros, Carpetright and Card Factory have all issued profit warnings.
The number of profit warnings by retailers listed on the FTSE has doubled as the sector feels the strain of rising costs and a squeeze on consumer spending.
According to research from EY, there were 20 profit warnings from listed general retailers in the first half of 2018, double the number issued in the same period the year before.
Retailers such as Debenhams, Moss Bros, Carpetright and Card Factory have all issued profit warnings this year, with many occurring soon after the Christmas spending season.
The distress in the sector has triggered a number of retail administrations and restructurings, with a string of businesses opting to use an insolvency procedure known as a Company Voluntary Arrangement (CVA) to close swathes of stores.
To stay in this ever-changing game, retailers will need to invest more and take more risks EY report
Non-listed retailers such as New Look and House of Fraser have also pushed ahead with CVAs, leading to thousands of job losses.
However, the process must be approved by landlords, who have been expressing anger at the high number of CVAs taking place in the sector.
Rival retailers have also voiced concerns about CVAs, saying they give an unfair advantage to weaker players.
In a report on company profit warnings, EY said rising operational costs from labour, business rates and the switch to online shopping were all piling pressure on retailers.
EY said CVAs were “just one part of the solution” for distressed businesses.
The report said: “To stay in this ever-changing game, retailers will need to invest more and take more risks. But many lack the capital and wherewithal to move forward.
“Thus, we expect to see a continuing divergence of fortunes in 2018, especially if landlords continue to toughen their stance on CVAs.
“Most well-planned and structured CVAs should get approval; but landlords are starting to take a tougher stance and there are few levers left for retailers to pull.
“Securing funding and credit insurance look increasingly problematic.”