The number of retailers going bust jumped 38 per cent in the first quarter of 2012 compared to Q4 2011, research finds.

The number of retailers going bust jumped 38 per cent in the first quarter of 2012 compared to Q4 2011, research finds.

The figure of 670 in the first quarter of 2012 is up from 486 in Q4 2011, according to research by accountancy firm Wilkins Kennedy.

Anthony Cork, partner at Wilkins Kennedy says, ‘The double-dip has pulled the retail sector down sharply. It is hard to see consumer spending rebounding in the current environment of slow wage growth and worries over the Eurozone.’

Cork adds that the number of retail insolvencies in the first part of this year has been even higher than last year.

‘Creditors and the management of these businesses would have examined their sales over the critical Christmas and New Year trading period and decided they had to pull the plug,’ he adds.

‘Last year was bad but this year is even worse. Retailers are still struggling with rents that they feel are far above the market rate and banks are particularly reluctant to extend credit to struggling retail businesses.’

The firm points out that many of the retailers that became insolvent this year were already perilously close to insolvency prior to the double-dip recession.

‘A lot of retailers have been seen as ‘zombie businesses’ since the 2009 recession because they have made enough money to service their debts but not enough to invest in solving fundamental problems with their business. These zombie retailers have been the first to go as the UK has re-entered recession.’

Very few retailers have been able to renegotiate the rents that they agreed when the retail market was much stronger, preventing them from downsizing their businesses and shedding their costs, according to Cork.

‘Retailers haven’t been able to find sub-tenants or renegotiate high rents agreed in better trading conditions. In the UK rents can only go upwards, leaving retailers lumbered with high overheads which they can’t afford if their sales fall.’

A reluctance from banks and even their suppliers to extend them more credit has not helped either. ‘Retailers might be able to survive short term contractions in consumer spending if credit conditions were better. However, retailers are finding it very hard to extend existing credit facilities or get new financing.’

But it's not all doom and gloom; accountancy firm Ernst and Young has predicted that income tax cuts and falling inflation will end the consumer squeeze on finances, leading to a 'slow and steady recovery' on the high street.

See also: Small retailers hit by crime