Rate rise to increase pressure on high street retailers warns RSM

Today’s increase in interest rates will add further pressure on struggling high street retailers RSM has warned.

Damian Webb, a restructuring advisory partner at RSM, said:

‘Yesterday, Next warned of volatile trading in the third quarter despite rising sales across its online and directory channels. It also gave a less than optimistic outlook for quarter four, prompting share price falls for retailers across the board.

‘Today’s rate rise – albeit a modest one – presents yet another challenge for the beleaguered high street. 

‘Consumers, who have already been hit with price inflation on food, petrol and holidays, could see their discretionary spending curbed further by increased mortgage and loan repayments.

‘But these aren’t the only headwinds facing the sector. The increase in the national minimum wage, and the hike in business rates effective from April has inflicted pain on some struggling operators, particularly in London and the South East.

‘The weakness of sterling has pushed up purchasing costs for imported goods, squeezing margins for those retailers who’ve been unable to pass these costs on.

‘Add to that a reduction in footfall in major city shopping centres – possibly linked to recent terrorist atrocities – and you can understand why distress levels are on the rise.

‘We’ve also seen an increase in store closures and a slight rise in the number of retailers going bust – a trend which could continue over the coming year. Businesses are pulling the shutters down far more quickly as they try to avoid declining profitability. Trading through is increasingly overlooked as companies try to conserve cash and shift attention to more buoyant locations. 

‘Clearly not everyone will struggle. Well-branded companies with distinct concepts and products and a sophisticated digital offering will continue to thrive, as will those which adapt quickly to changing consumer tastes.

‘It will be interesting to see how sales figures hold up during the heavy discounting period around Black Friday. This will be a stern test for some which could impact on their long term viability.’

Related services

Related industries