Outlook challenging for certain sectors

The UK’s political and economic landscape has changed significantly over the past year or two – our Managing Director, Trevor Price, takes a snapshot of the latest sector-specific challenges.

According to recent research by KPMG, the number of companies entering administration increased slightly in Q3 of 2017, while throughout the year the media has been full of stories about various well-known names failing (for example Monarch Airlines, Multiyork and Palmer & Harvey have all failed in the last two months).

Additionally, there has been much published in the press recently about the impact of zombie companies – which are deemed likely to fail within a fairly short period of time, owing to a rise in interest rates, increasing employment costs, and uncertainty around Brexit. Begbies Traynor’s most recent Red Flag Alert reported that the number of UK businesses experiencing ‘significant financial distress’ had reached unprecedented levels in the last year, totalling 448,011, and that more than half of these ended Q3 as zombies – 248,619 zombie companies, to be precise.

Which are the industries that seem to be struggling the most in today’s economy, and why?

Two very high-profile failures hit the headlines in 2017 – Lowcostholidays and Monarch Airlines. The travel industry’s pressures stem from a number of factors. The threat of terrorism has had a major impact on consumer behaviour, so holidaymakers have been shying away from traditional destinations such as Turkey and Egypt, while the industry’s low margins – in the context of rising costs, the weak pound, Brexit uncertainty, and ferocious competition – have also put companies under financial pressure.

The list of 2017 failures in retail makes for depressing reading, with numerous well-known high street brands included, such as Jones the Bootmaker, Agent Provocateur, Jaeger, Brantano, Multiyork and its sister company Feather and Black. In its latest 2017 report, the British Retail Consortium stated that footfall had decreased by 2% year on year, while the backdrop of rising inflation and a weak pound have decreased consumer confidence. Additionally, shifts in consumer behaviour towards digital and online businesses have put extra pressure on the high street.

At the end of October, The Caterer reported that new figures issued by accountancy firm Moore Stephens put the proportion of UK restaurants at risk of insolvency at 20%. Their research reveals that 14,800 British restaurants were struggling to stay afloat owing to rising staff costs (related to the higher National Living Wage), business rate hikes (of up to 42% in some areas), and food price increases, coupled with a weak pound. Unlike other sectors, failures of large companies are not common, because chains tend to close under-performing sites to refocus the resources elsewhere – as we’ve seen Byron Burger and Jamie’s Italian do this year – but the failure rate of independents is significant.

Data collected by Moore Stephens suggests that a quarter of all construction firms are at risk of insolvency by 2020, particularly those building for the commercial sector – a prediction certainly borne out by the well-publicised troubles at giants including Carillion and Mitie. The famously narrow margins of the sector – which has a highly competitive and price-sensitive marketplace – plus growing pressure from Brexit uncertainty, are the major factors at play here. Additionally, the domino effect caused by clients going out of business with unpaid bills, and main contractors failing while owing money to contractors, is a very real threat, while cash flow challenges are also exacerbated by HMRC’s Construction Industry Scheme (CIS).

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