Deloitte, the business advisory firm, has announced today its analysis of the retail administration figures for the second quarter of 2008.

Contrary to expectations, the latest retail administration figures show that there has been a drop of 16% in quarter two compared with the previous quarter and a staggering 30% drop in retail administrations for the first half of 2008 compared with the same period in 2007.

While the decrease in administrations is surprising, there are other trends playing in the market which have caused this somewhat counter-cyclical set of numbers.  

Traditional book, music and DVD retailers really struggled over the past two years, as did card, gift and toy retailers largely as a result of competition from the internet.  The drop-off in figures in these sectors this year shows that the worst effects of this maturing market may have been felt.

The same cannot be said for fashion clothing, however, where  the effects of the credit crunch are starting to filter through: there has been a 28% increase in administrations in this sector this year.  Fashion is often one of the first sectors to be hit hard as consumers’ discretionary spend is tightened and those retailers whose customer offering isn't spot on experience sales slippage.

Lee Manning, reorganisation services partner at Deloitte said that, “it is important to note that the administration figures are generally skewed towards smaller businesses, as larger businesses are better suited to being restructured, because of their greater scale and financing models."

Manning also says, "if, as we are now seeing, the larger retailers are feeling the pinch, their smaller counterparts will also be suffering and may struggle to survive if the present economic environment persists.  In particular, we would expect furniture and household related retailers to experience an increase in failures next quarter."

The administration figures do not bear out general market sentiment, Richard Hyman, strategic adviser to Deloitte, commented: “Retailers are faced with an equation that does not balance: customers are reining in spend while costs are escalating.  The retailers that are able to both react quickly to the market by adapting their offerings to changing customer needs while encumbering as little cost as possible will be able to both survive and achieve business success.”

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