Retail Suppliers Beware of Bad Debt as Shops Face a Slow Christmas

London, 07 December, 2005 - Retail suppliers warned to keep an eye on sales performance as Britain’s shops and stores face their toughest festive period in 20 years.

Retail suppliers are being warned to keep an eye on the sales performance of their customers this Christmas and impose strict credit management as Britain’s shops and stores face their toughest festive period in 20 years.

 

Global credit insurer Atradius predicts that a number of retailers face financial hardship in the New Year – and if they fail, the knock-on effect of unpaid bills could take many suppliers with them. In the latest edition of Compass, its customer magazine, Atradius says it has increased its own monitoring of the retail sector.

With high street stores already suffering a downturn in consumer spending, Atradius says things will only get worse over the next few months. More than half of retailers say their November sales figures are down on last year¹, whilst Christmas spending is predicted to fall by around £400 million, down almost 3% on 2004 and equating to an average spend of £310 per person².

Will Clark, Atradius’ Regional Director of the UK & Ireland, NAFTA and Australasia, says: "Christmas is normally the boom time for retail sales, but figures show that for the second year running shoppers are tightening their purse strings. There is still an inherent nervousness amongst consumers about interest rates and house prices, and this is being translated into cautiousness at the tills.

"Atradius has increased its surveillance of the consumer durables sector so we can keep a close eye on trends and inform our credit insurance customers about sectors or businesses that are looking unstable. But suppliers must also take action to protect themselves from bad debt by keeping in touch with their customers, ensuring prompt payment and withdrawing credit if they are concerned."

In January 2005 a number of retailers went to the wall after poor Christmas sales that were the culmination of 12 months tough trading. Well-known names such as Alders, Courts, Allsports and Pilot all collapsed and the start of 2006 could show a similar picture.

Atradius says that a shift away from traditional high street shopping patterns is also taking its toll on the retail sector, as more people are buying on-line, often at much lower prices. Internet retailers such as Amazon now offer a wide selection of goods online cheaper than the high street and without all the Christmas shopping hassle.

Supermarkets like Tesco and Asda are causing a double whammy by offering cut price goods both in-store and online. And while Dixons and Currys, both part of the DSG group, reported year-on-year sales drops of 2% and 3% respectively, research by Atradius found that Comet, their major electrical competitor, is offering certain products online as much as £180 cheaper than in-store³.

Atradius says that although this is potentially good news for bargain hunters willing to trawl the net for the best deals, it is bad news for suppliers as it means that profits are being slashed, putting the squeeze on the prices they charge retailers.

In fact Sony has decided to supply its goods to online organisations at higher prices than it is charging bricks and mortar retailers. However, as consumers continue to demand best prices from their brand name goods, it is unlikely to be long before Sony is forced to change tack.

Atradius says that retail suppliers must implement tight credit control procedures, including taking out credit insurance, credit checking new and existing suppliers, as well as keeping in touch with other suppliers, the trade press and credit insurance experts to monitor the stability of their customers. Suppliers must also ensure that payment terms are met and they should consider demanding payment in advance if they are concerned about a customer.