The impact of the credit crunch on independent retailers

News by Adfero for Simply Business

The credit crunch has had a disastrous effect on many large organisations. The scale of the crisis has been brought home by events like the collapse of Woolworths, as well as mass redundancies at previously rock-solid organisations like RBS and BT.

But as large firms struggle to cope with the current financial crisis, how are independent retailers likely to fare?

A survey by the Federation of Small Businesses (FSB), published in December, found that 64 per cent of small retailers believe trade has decreased in the last two months. This compared to 11 per cent who felt trade had increased, and 25 per cent who felt there had been no change.

In the same survey, 58 per cent said they felt less optimistic about their prospects following the Chancellor’s Pre-Budget Report, compared with six per cent who felt more optimistic.

Worryingly for small businesses, the survey found that 21 per cent of firms had already reduced employee numbers, 18 per cent had reduced staff hours, 23 per cent had reduced future hiring, and four per cent had closed down.

A further 39 per cent said they would consider closing if the current situation worsened.

Responding to the survey results, FSB chairman John Wright, told the Daily Telegraph that redundancies or business closures would be “a disaster for millions of employees as well as the economy as a whole”.

Mr Wright said it was vital that banks improved lending terms to help small businesses in the current climate, and called on the government to bring its £1 billion small business finance scheme forwards.

He added: “The onus will now be on the banks and their branch managers to stop their Scrooge-like tactics and open their pockets to small businesses.”

Despite these concerns, some organisations insist that well-managed small businesses could benefit from the economic downturn.

The director of Reading-based property agents Lambert Smith Hampton says larger firms are losing their traditional advantage over independent businesses when it comes to securing prime retail locations.

He told the Reading Chronicle: “Because chain retailers and restaurants have stopped acquiring - because they have been hit hard - it opens up pitches that previously would not have been attainable by individuals.

“A lot of tenants in some prime pitches are going to fail. Until now individuals have found it impossible to acquire such properties.”

Research by advisory service Business Link paints a similarly optimistic picture in London, according to smallbusiness.co.uk.

Business Link’s survey of 656 SMEs found that over 50 per cent believe they are better placed to survive the credit crunch that their larger counterparts.

Furthermore, nearly three in every five businesses expected to grow in the next twelve months, around one quarter were planning to hire more staff within the year, and 44 per cent said they were aggressively seeking new business opportunities.

The chief executive of Business Link in London, Patrick Elliot, said: “Many of the businesses we spoke to cited low overheads and a loyal customer base as key factors in helping them continue to thrive.

“For the time being at least, London’s entrepreneurs seem to be keeping doom and gloom away from their door.”

However, the same survey also showed that around one third of the businesses questioned had experienced a drop in sales.

So while the economic downturn will inevitably lead to the collapse of some SMEs, it seems others are poised to take advantage of the new opportunities brought by such difficult times.

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