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Financial Firms and Retail Industry at Risk of Collapse

The economic turmoil caused by the coronavirus pandemic and lockdown measures is set to affect many different sectors. Two of the industries that are in the news just now are fashion and financial services.

With companies all over the country struggling for cash and turning to services such as international debt recovery, these industries give us an idea of the problems that could lie ahead in other areas too.

Many Smaller Financial Firms Could Go Bust

The Financial Conduct Authority has warned that many financial firms could go under due to the fallout from COVID-19. They say that this would put the Financial Services Compensation Scheme under a great deal of pressure.

This scheme kicks in when an authorised financial company goes out of business. It provides cover for up to £85,000 worth of deposits. The comments from the FCA were made as part of their business plans for 2020/21.

The Bank of England has already confirmed that high street banks are well-capitalised and shouldn’t be in danger of going to the wall. However, the compensation scheme also includes smaller companies such as asset managers and pension providers.

The official statement from the FCA pointed out that COVID-19 will have a “significant impact on the viability of a number of firms”. They went on to state that a key part of their work just now in anticipating which companies are likely to fail, so that it can be done in an “orderly fashion”.

The Fashion Industry in Chaos

It has also been reported that the British fashion industry could be facing up to a bleak period ahead. Nigel Lugg is the chairman of the UK Fashion and Textile Association. He pointed out that suppliers are already struggling due to retailers cancelling orders and extending payment terms.

Lugg said that most of the biggest retails are pushing out their payment terms from 60 days, with some going to 120 days and others as high as 150. He also mentioned “widespread cancellations even of orders in progress”.

Many British suppliers have already received letters pointing out that they won’t be paid for the orders that are currently in production, with some major retail chains delaying payment indefinitely. Suppliers won’t be paid for the raw materials used or the time already spent on cancelled projects.

It has been noted that the Spring/Summer 2020 season will barely exist this year in the fashion world. Therefore, many firms are already pinning their hopes for this year on a strong final quarter.

With retail stores closed and online operations suspended in many cases, there will also be an issue further down the line with unsold inventory. It is expected that a huge amount of marked down stock will be sold to other parts of the world, in an attempt to clear their inventory.

Some estimates even put the amount of unsold stock at up to 60% of the big retailer’s turnover, whereas it would normally only be around 3%. There have already been reports of some major fashion chains planning to go into administration, so it looks like being a long, difficult year for this industry.