The recent rash of high street failures could panic suppliers into cutting back on credit to retailers, Ernst & Young is warning.
The accountancy firm told this weekend’s Observer that the cost of stocking the shelves for Christmas could result in more high-profile retailers going down.
“We will continue to see a shakeout of those struggling with rising costs, wage inflation and falling consumer spending,” the firm’s head of restructuring, Adam Hudson, told the newspaper. “[They] will find it very hard to make enough cash to invest in Christmas. If retailers can’t get the inventory, they won’t make money. Some of them only really make money at Christmas.”
Ernst & Young has also produced a report revealing that retailers have issued more profit warnings so far this year than were given in the whole of 2010.
The report shows that 26 profit warnings have already been made by listed retailers in 2011.
Said Hudson: “The spending boost gained from the long run of spring bank holidays, the fair weather and the royal wedding can only provide a temporary fillip to retailers, many of which are burdened with debt and under stress from years of tough trading.
“The latest figures show that household disposable income is falling 2.7% year on year, with tax rises, benefits cuts and below-inflation wage increases really taking their toll on consumers.”