Scottish Hotels and Shops in Trouble

According to research from R3, a trade body for insolvency professionals, nearly one in five hotels and one in four shops across Scotland may collapse during the next year. This is one of the most desolate forecasts on the impact of changing shopping habits due to weak consumer confidence. The study found that 30 hotels and 274 retail businesses in Scotland have a high risk of going into administration over the next 12 months. Another 137 hotels and 1,238 shops are vulnerable to collapse during the same period. This means that 18% of hotels and 26% of retail businesses are at some risk of going out of business.

R3 spokesman Iain Fraser says the retail sector in Scotland is suffering from both systemic changes in shopping habits and lack of confidence among consumers. This means retailers who don’t embrace new technology could collapse. The shift to online shopping is really impacting retailers, as many still haven’t made the move online.

Fraser went on to say that there will always be retail shops on the high street, but their composition, products and methods of delivery have dramatically changed in the last decade. This will continue, and retailers that don’t respond to the changes will cease to exist. There is still also the very difficult economy, which even poses challenges for businesses that are successfully adopting new technologies. There’s also some ways to go before the economy recovers, and retailers offering non-essential or niche products will face challenges until then.

Fraser added that hotels also face challenges in maintaining bookings without reducing prices, as the sector is vulnerable to the gloomy economic climate. Leisure travel can be easily curtailed, while business travel is still subdued. Given that operational costs are still high, it will be tricky to balance bookings and prices. Unfortunately, it’s likely many businesses will continue collapsing until the market recovers considering the high capital costs in the hotel sector.

The Scottish Chambers of Commerce says these figures are an utter demonstration of the trends shown in their recent quarterly business survey. They also highlight how fragile the Scottish economic recovery is. Liz Cameron, the chief executive, says this is combined with recent bad weather and the strength of the pound against the euro. These factors are driving tourists to other holiday destinations.

However, Cameron added that their own research also suggested a deceleration in decline for the accommodation and retail sectors. For example, government spending on infrastructure will drive growth for jobs. This should positively impact consumer confidence and benefit the tourism and retail sectors.

Aside from R3′s figures, credit data firm Experian also released figures this week that show 107 companies went under in June. This is 6% fewer than the same month last year. Additionally, the figures show that a total of 1,650 businesses across the whole UK became insolvent during the month – a 1,783 decline from last year.

Last week, accountancy firm PKF reported that occupancy dropped 5.4% and revenue fell 7.9% during the month of May at three- and four-star hotels in Edinburgh. This suggested that hoteliers may have a challenge ahead of them later in the year in compensating for poor spring performance. However, these figures differed from those for the whole Scottish hotel sector, which saw a rise in both occupancy and revenues for the month.