UK Retail Has a Miserable Year and 2012 Looks Bleak

British retailers were hit hard in 2011, with falling sales and increasing administrations, and a bleak outlook lies ahead for 2012.

The total number of retailers in England and Wales falling into administration in 2011 increased by 11 percent from 165 in 2010 to 183, according to research by Deloitte, the business advisory firm.

Despite an increase in sales over the busy period of Christmas, administrations still increased by 27 percent on the previous quarter, with a total of 42 retailers succumbing to administration compared with 33 in the third quarter of 2011.

Lee Manning, Deloitte's restructuring services partner, said 2011 was a "tough year" for retailers and unfortunately the trend is set to continue well into 2012. "Many retailers would have been banking on the busy Christmas period to give them a much needed sales uplift, but retailers were forced into discounting at levels last seen in the aftermath of the collapse of Lehman Brothers, putting severe pressure on margins."

Manning said British retailers are likely to see a further spike in retail administrations in the first quarter of 2012, as retailers buckle under the pressure of VAT payments falling due, impending rent payments and the increased popularity of online shopping.

Findings from Deloitte's recent Consumer Tracker, a new regular monitor of consumer confidence and spending habits, found that one in five households have seen a reduction in income as a result of unemployment, loss of bonuses, reductions in overtime and increased part-time working.

"Overall, the total number of companies falling into administration in 2011 declined by 4 percent from 2,086 in 2010 to 2,010. Unfortunately, we will see a growing number of companies enter administration, as fears around the eurozone crisis and rising unemployment increase," Manning said.

In response to the statistics released by Deloitte, the British Retail Consortium (BRC) warns of further retail administrations in 2012.

BRC said the increase in retail administrations shows how trading conditions have toughened and how important it is that the governments supports the sector by reducing new taxes and regulatory burdens.

Stephen Robertson, director general of the BRC, said 2011 was a tough year "with virtually no real terms growth for retailers".

"In such a competitive sector there will always be businesses that do well while others struggle, but seeing such a high number of failures in the final quarter of the year is particularly alarming," he said.

Robertson warned that the next few months are bound to be quieter, as consumers rein in spending after Christmas.

"Retailers are doing their bit by controlling their own costs and keeping prices down for customers despite steep increases in transport and utility bills. The UK's government needs to support the sector's efforts to survive, thrive and maintain jobs by holding back the costs for which they are responsible, including business rates, retail levies and the burden of regulation.

"Retailers don't ask for handouts but they do deserve help overcoming some of the barriers to business success. Retail failures leave gaps on our high streets and can result in thousands of job losses. As the private sector's biggest employer and a major source of jobs for the under-25s, retail needs politicians to recognise the folly of making life harder than it already is."

In contrast, e-retailing, or online shopping, has continued to grow.

Andy Mulcahy, from Interactive Media in Retail Group (IMRG), Britain's industry association for e-retailing, said online shopping is growing even though it is still a young industry.

"It's not all doom and gloom", Mulcahy said in reference to online retail.

While figures from the last quarter of 2011 have yet to be confirmed by IMRG, Mulcahy said they are expected to see around 16 percent growth in online retail sales for the year.

He said consumers were becoming more confident about making online purchases and that social media was playing a key role. A lot of people are also carrying out research online even if they don't go ahead and make online purchases.

"[Shopping online] is definitely becoming part of the culture nowadays," Mulcahy said. "A very natural part of our lives now is going online."

Mulcahy said consumers are quickly realising the benefits of shopping online with faster delivery times, including collection point options and improvements in online security.

But with a gloomy forecast for 2012, including predictions of a slowing economy and a double-dip recession for the UK, retail overall will be affected, with consumers exercising caution and pulling back on spending, he warned.

"This is going to be a very tough year. 2011 was a bad year and this is going to be a bad year as well," he said, adding: "Online [retailing] is definitely going to do well - but there is still the pinch on consumer wallets."