OK, I’m going to say it – I told you so

August 30th, 2019

This column is not globally syndicated (yet) but I do have many regular readers, most of them from the world of accountancy and audit.

These readers also use the services of Insolvency Practitioners Direct because they know that not only will we forensically and accurately investigate what is going on with their clients – and, crucially, establish why – but also come up with a range of options and solutions to find the best way forward based on years of experience.

But that is not the main reason that they read this blog, no sirree. They read it partly to be entertained (so they tell me) but mainly because they want to see into the future. And, to be fair, we do have a habit of foretelling the future pretty accurately, based on years of “reading the economic runes”. So although IPD does not actually stand for Intuitively Perfect Diagnoses, we do regularly and accurately forecast what is going to happen to the economy next.

And if that whip-smart business journalist Ian Fraser is any judge, we have done it yet again. Ian was business editor at The Sunday Times Scotland and financial editor of the Sunday Herald. He also wrote ‘Shredded: Inside RBS, The Bank That Broke Britain’, a detailed account of one of the most disgraceful episodes in British corporate life. As you may imagine, here at IPD we like detailed accounts.

So how does he confirm that we are red hot fortune tellers? Writing for Raconteur, he explains his theory that a rise in insolvencies could actually be good for business. 

Every recession, according to one of his expert interviewees, is a good opportunity for some “creative destruction” so the worst-performing businesses can be flushed out and more dynamic businesses can pick up market share. 

He points out (as readers will already know from my dissection of Q1 statistics recently here ) that business failures in England and Wales rose by 26.8 per cent in the first quarter of 2019, against the same period in 2018, to reach their highest level since 2014.

Ian Fraser also quotes John Tribe, senior law lecturer at Liverpool University, who says higher use of company voluntary arrangements, a mechanism currently favoured by retailers to negotiate cheaper rents from landlords, may also be distorting the picture. Again, my blog 15 months ago foresaw all this happening here (2017 – 307; 2018  – 356; a 16% increase). 

His article also refers to the collapse of Carillion last year, which caused a domino effect among subcontractors and was brought about by that company disastrously reducing contract margins down to wafer thin levels – something this column was pointing to in blog after blog here, here,  here  and particularly here at a time some commentators were still trying to work out how to spell Carillion.

Ian Fraser also quotes Julie Palmer, regional managing partner at Begbies Traynor, who says that the stimulus measures introduced after the 2008 global financial crisis, including ultra-low interest rates, quantitative easing and HM Revenue & Custom’s ‘time to pay’ scheme, have “left us with a hard core of 480,000 zombie businesses, none of which are going anywhere”. You may remember those terrifying zombie businesses reared their bony heads in my April blog here.

The overriding point of Ian Fraser’s article is that a large number of factors – Brexit, poor management, too many outlets chasing too few customers, the rise of disruptive on-demand ‘platform’ services such as Deliveroo and Uber – naturally sorts out the wheat from the chaff and we ultimately will emerge with a stronger economy.

There is a lot of pain to come first, though, and it is Julie Palmer who points to a huge problem coming down the line for retail businesses.

Apart from the pressures of high business rates, inflexible landlords and the rise of online shopping there is, she says, “a generational shift” that could spell curtains for the retailers’ traditional business model.

“People in their 20s and early-30s lead more portable lives, and are less interested in accumulating CDs, DVDs or even clothes. They’re less materialistic, tend to everything on their mobiles or tablets or the cloud. We’re seeing the effects of that very dramatically in retail,” she says, foreshadowing a rise in retail insolvencies.

I know what you are thinking, dear reader – “where have I read that before?”.  Yes, you’re correct, it was right here earlier last month!

Mind you, neither of these two respected economic commentators mentioned that the problem with retail will be particularly acute because many of the Generation Z shoppers accessing this new retail environment has very much money to spend at the moment, which is a key point of my last blog.

No doubt this aspect will be picked up and written about in the months to come. And I’ll just say then what I’m going to say now – I told you so.