THE number of retailers in Salisbury experiencing financial difficulty fell in the final three months of 2014, according to the latest Red Flag Alert research into corporate distress levels from business recovery specialist Begbies Traynor.

Between October and December last year there was an 11 per cent drop (37 to 33) in Salisbury businesses categorised as general retailers suffering from significant financial distress (SFD) - that is businesses subject to minor county court judgements (CCJs) up to £5,000 and dwindling credit scores.

For many businesses, though, Christmas came far too late. Year-on-year in Salisbury the number of shops in SFD rose by 18 per cent (28 to 33), as the ongoing price war between the major supermarkets and German discounters Aldi and Lidl continued to take its toll on smaller businesses.

Looking specifically at food and drug retailers in Salisbury, there were sustained increases in SFD, both quarter-on-quarter and year-on-year. Between quarters three and four last year the number of firms in this category experiencing problems rose by 30 per cent (10 to 13). Between quarter four in 2013 and quarter four in 2014 there was an increase amounting to 160 per cent (five to 13).

Across the south-west region, there was a 36 per cent drop (11 to 7) in the number of general retail businesses in the more serious Critical Financial Distress category between quarters three and four last year 2014. In food and drug retailing distress levels remained broadly flat.

The local trend reflected the national picture, where there was a four per cent final quarter drop (18,471 to 17,781) in the number of businesses categorised as general retailers experiencing SFD. Annually this sector witnessed an increase of 36 per cent (13,051 to 17,781).

Julie Palmer, regional managing partner at Begbies Traynor in the south-west, said retailers faced an incredible challenge due to generational shifts in consumer habits.

She said: “While the run-up to Christmas 2014 brought some relief to hard-pressed retailers, the fact is the sector is experiencing unprecedented changes in the way people make their purchases.

“Online retailers, which we all know are experiencing phenomenal growth, are using their reduced overheads to keep prices low and that is determining consumer behaviour and hitting those with traditional retail space.

“As for food retailers, the German discounters have massively disrupted the UK market, bringing us cheap food like we've never seen before and creating a classless shopping experience as people of all backgrounds are buying their groceries from them.

“There's a huge amount of uncertainty around the long-term effects that the changes in consumer habits will have on the food retail sector.

“Despite the economic recovery, people have become wedded to buying their weekly groceries from Aldi and Lidl.

“And one thing's for sure - it's going to take a lot to persuade many British consumers to pay more for their food.”

The woes of the retail industry are also filtering through to the supply chain. Across the UK, at 92 per cent (733 to 1,410), food and beverage manufacturers experienced the biggest year-on-year rise in SFD of any sector.

The effects of this increase are starting to emerge in Salisbury, with a 100 per cent annual hike in financial problems amongst these firms (two to four).

Ms Palmer said: “A perfect storm is brewing for small and medium-sized enterprise food suppliers at the bottom of the food supply chain, with many suffering a double hit from larger suppliers demanding 'loyalty' payments as well as vanishing margins as a result of the inevitable aggressive supermarket price war. Adding to their misery, the UK's food producers and suppliers have failed to see any benefit from the rise in popularity of discounters Aldi and Lidl, since much of their canned and packaged stock is sourced from overseas.”