The UK’s second-largest trade credit insurer, Atradius, has revealed the number of claims it received in the retail sector increased year-on-year by 43 per cent in Q3 2023. The new data comes as they urge retailers to diversify their high street offering to draw in consumers amid an online ‘returns crisis’ and an increase in payment defaults.
Late and failed payment claims trends, data that tracks the ability of sectors to meet agreed payments, from Atradius reveal that following a year of high interest and inflation rates, retail firms are struggling more now than this time last year. Payment defaults increased year-on-year for footwear firms (300 per cent), clothing firms (38 per cent), and consumer durables (8 per cent). There was also a substantial increase quarter-on-quarter, with increases in claims for retail stores (33 per cent), footwear firms (100 per cent), and consumer durables (17 per cent).
There have been opportunities for clothing brands that saw a 39 per cent decrease in claims in Q3 thanks to a seasonal uplift in sales. This was bolstered further by £1.04 billion being spent over this year’s Black Friday. Experts at Atradius are now recommending that while there are some encouraging signs of recovery in the sector, retailers must plan ahead to safeguard themselves ahead of a quiet Q1.
Owen Bassett, insolvency and retail expert at Atradius UK, advises:
“It’s no secret that 2023 has been turbulent for retailers. However, interest rate stability has given a confidence boost to consumer spending in time for the Christmas period. This has resulted in the biggest Black Friday yet for online retailers, hitting over £1 billion in online sales. Despite this, we can expect Q1 to be much quieter, so retailers need to look at how they can harness consumer attention in 2024. The answer could lie in moving towards – not away from – the high street, which could help retailers to overcome the returns crisis currently impacting online profit margins.
“Online shopping became a mainstay for many households thanks to lockdown, and in 2023 has stabilised at around a quarter of all retail spend. Despite the popularity, consumer research recently revealed that 80 per cent of online returns were due to damaged goods, while an average 18 per cent of online purchases are ultimately returned – almost double the 8-10 per cent average return rate for in-person shopping. By drawing more consumers into physical stores, retailers may be able to take advantage of higher transaction rates, as well as overcoming the challenges of user experience and engagement and easy availability of competitor comparisons that come with online shopping.
“At Atradius, we have seen how diversification of offering and supply chains, such as including a wider range of stock, can help businesses to weather economic challenges. While affordability is still important to consumers, the most successful physical retail firms are offering a varied shopping experience. Diversification – from having a café to selling clothes and groceries – has secured a permanent place for ‘the big four’ supermarkets in leading retailer lists, followed closely by multi-faceted retailer Marks and Spencer’s.
“Ultimately, retailers offering enhanced customer in-person experiences, good quality products, and relative affordability are thriving. As we enter 2024, retailers must plan ahead and look at how they can safeguard their financial future. One of the most fundamental tools for protecting against the ‘domino’ effect of insolvency amid economic uncertainty is protecting supply chains and trade agreements with trade credit insurance and working closely with your account manager to keep a finger on the pulse of not only your supply chain but also the sector and economy as a whole.
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