Shops 'til they drop

What has caused the sudden wave of retail insolvencies?

It has been a bad few days for retailers. A number of well-known names have succumbed to the effects of the retail slow-down, with Jane Norman and Habitat appointing administrators, TJ Hughes reportedly on the brink of entering administration and an announcement from chocolatier Thorntons that they intend to close up to half of their high street shops.This has come in the wake of retail figures for May that showed sales had slumped by 1.4%, reversing an increase of 1.1% the previous month.

Many retailers have been struggling for some time to keep their heads above water, with shoppers choosing to put off major purchases in the face of increasing economic uncertainty. Increasing food and fuel prices have hit consumers hard and many are concerned about job insecurity. The easy availability of credit that stoked the high street spending boom of the last decade is long gone. Shops have suffered from poor cashflow and slim margins, particularly where they are servicing high levels of borrowing.

But why the sudden wave of insolvencies? Traditionally, landlords collect rental payments from their tenants on a quarterly basis, in advance. The end of June sees another 'quarter day' when many retailers' rents will fall due for payment. With little opportunity to re-let shops to new tenants, landlords will be tempted to enforce harshly the terms of their existing leases, to prevent a melt-down of rental income. However, if landlords fail to work with their tenants when times are hard, they face the possibility of losing their tenant altogether if the tenant becomes insolvent. By using an administration procedure, struggling retailers are protected from their landlords taking action to lock them out whilst a new buyer is found, and a potential purchaser will often have the upper hand in any negotiations over future rents.

And what effect will this have on suppliers? When large firms become insolvent, they often leave many small suppliers high and dry, with little or no prospect of repayment. This can have a knock-on effect on their viability, and I'm afraid that many smaller businesses may be hit hard by the failure of these high street names.

But as always, the message is that help is at hand, and the sooner that advice is sought, the more palatable the options will be. Just because a major customer has let you down, it doesn't have to mean the end of your business as well. Call Paul Moorhead of Moorhead Savage today on 01709 331300 and find out what we can do to help.

No longer safe as houses?

More pain ahead for the property market

Latest figures released by the Bank of England have shown that mortgage approvals in April dropped to their lowest level since records began in 1993. The reduction in lending is likely to cause more problems in the housing market, with Morgan Stanley predicting that house prices will fall 10% by the end of 2012.

Not only is this bad news for homeowners, but it may also start to cause further problems in the beleagured banking sector. Many banks are still massively exposed to moves in house prices, due to mortgage deals arranged during the last decade. In particular, The Telegraph reported that Lloyds TSB may be hard hit, with up to one quarter of its mortgage customers in negative equity by 2012. Analysts suggested that this could mean that mortgages totalling up to £90 billion were potentially affected, at this one bank alone.

However, as always, statistics can tell a thousand different stories and the Council of Mortgage Lenders issued a prediction that 'net' mortgage lending (stripping out redemptions and repayments) would actually rise during 2011 to £9 billion, up from £8 billion last year. This may sound like a lot of money, certainly enough to keep the current Mrs Moorhead in the manner to which she would like to become accustomed. But in 2006, the last year that mortgage lending rose, the total lending was £110 billion. That's right, £110 billion. So we are currently running at about 8.2% of 2006 mortgage lending levels. No wonder the housing market is in the doldrums, but also no wonder that so many homeowners, and banks, found themselves in seriously deep water.

As ever, when money matters go wrong, we can help. My number is 01709 331300.