Retail nightmare

In the midst of the retail gloom, I'm surprised at how the media can overlook some deep structural problems that have popped up in specific countries. Take the UK, which is lurching from one retail setback to another.

There's very little coverage (if any) of the fact that credit insurers have virtually disappeared from the market. For reference, these are firms that provide insurance to retail firms. For example, when a shop purchases stock on 30 day terms, the insurer provides protection in the event of the purchaser failing to meet the obligation.

In the past six months 90% of that capacity has vanished, led by large players such as Euler Hermes. Why does this affect retail? All of a sudden, suppliers can't get that insurance, so they demand payment at time of shipping. Suddenly your shop has to come up with the money there and then, rather than in 30 days. It may simply not have that cash, particularly in a period where they need to buy a large amount of stock (such as the Christmas season).

Add in the 24th December rent payments that come due on many commercial leases, and you have a recipe for retail disaster. I spoke with a distressed investor this morning, who is aware of hundreds of small and medium businesses that are two weeks away from going under. It's a frightening scenario, and in this festive season a harrowing one.