Businesses in the UK’s retail sector will be among those most in need of support to stay afloat this year as the cost-of-living crisis tightens its grip on consumers, according to the Institute for Turnaround (IFT).
Last year IFT members, who help underperforming businesses avoid unnecessary insolvency, saved in excess of 80,000 jobs as initiatives to fix finances and revamp growth strategies bore fruit.
In its latest Societal Impact Report, the IFT predicts increased demand for its services among struggling businesses this year, with the casual dining sector likely to be among the hardest hit.
IFT chairman Andy Leeser said: “Among IFT practitioners, the retail sector is expected to see continuing demand for turnaround management over the next 12 months, in part reflecting consumers squeezed by rising energy bills, higher food prices and increased mortgage costs.
“This was backed up by data from Companies House that showed that the steep increases in the number of distressed retail companies in the last quarter of 2023.”
The IFT report adds that inflationary pressures, rising energy prices, interest rates and labour shortages mean demand for turnaround expertise among distressed businesses more generally will continue to grow in 2023.
“The directors behind UK businesses large and small, having risen to the manifold challenges of the Covid pandemic and associated lockdowns, might have expected a period of calm to recover and rebuild,” said Leeser.
“Instead, firms have found themselves faced with multiple new challenges. A cost-of-living crisis is hitting consumers, whilst a cost of doing business crisis is combining with pre-existing stresses to put a great deal of pressure on UK PLC.”
Whilst inflation is predicted to fall from likely peaks reached towards the end of 2022, it is still expected to end the year well above the Bank of England’s 2% inflation target. IFT noted that borrowing costs, and borrowing conditions, will most likely remain challenging. Rising prices and wage pressures, a major feature of the business environment of 2022, will also remain big headwinds for business in 2023.
“All these factors are still working their way through to the balance sheets of UK businesses, with much of the consequences still to be felt,” commented Leeser.
“Despite the distinct benefits turnaround experts can bring, many companies remain reluctant to appoint a turnaround adviser until cash flow pressures are extreme, which can limit the range of restructuring options available.
“The challenges and risks identified in the report, in addition to the uptick in fortunes experienced by businesses that engage short term professional expertise, suggest that UK businesses suffering stress in the retail sector should act now to engage accredited turnaround support.”
