There has been a 77% increase in the number of retail businesses that have failed this year compared to the same period last year, according to Insolvency-journal.ie.
Retail insolvencies have increased by 28% since June of this year and by 77% compared to July 2011.
According to recent figures released from Retail Ireland, the Irish retail market has shrunk by more than one-fifth in value terms since the recession hit in 2007.
Ken Fennell, partner with Kavanagh Fennell, said the retail sector has been hit by a “perfect storm”.
“The retail sector over the past couple of years has been hit by the perfect storm of low consumer sentiment, upward-only rent reviews, intensive competition from large multinational multiples, and a surge in online retailing. In addition, the inclement weather has caused considerable difficulties for fashion retailers,” he said.
The Retail Ireland figures show that discretionary spending on items such as furniture, clothing, and books are sharply down.
As their sales have remained down, retailers have been struggling to meet the long-term rent agreements they have been locked in to. Upward-only rent reviews are continuing to hamper the whole sector, with some companies being forced out of business or into examinership as a direct result.
An examiner was recently appointed to 13 Atlantic Homecare stores. The examiner is seeking to exit existing lease commitments and renegotiate upward-only rent reviews which would appear to be the company’s most problematic liability.
Mr Fennell said: “There isn’t a simple solution as landlords who in many insistences are now in Nama are trying to protect rental income generated by retail assets and retailers are trying to reduce rental payments to survive.”
One of the spin-offs as a result of the problem with high retail rents is the surge of Pop-up shops. The expression is used to describe shops rented out for five years and under.
Commercial property consultants Jones Lang LaSalle said this new rental arrangement is a middle ground between landlords and tenants.
Mr Fennell said that unless there is an upturn in consumer confidence or government intervention in the sector they will face a very tough 2012.
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