Leisure sector feels the squeeze as punters skip their round

More bars and restaurants are getting into financial difficulty as we cut back on our discretionary spending...

by James Taylor
Last Updated: 19 Aug 2013
The leisure sector is having a torrid time at the moment, judging by the latest Red Flag Alert from insolvency specialist Begbies Traynor: the numbers of bars and restaurants suffering 'significant or critical' financial distress is a whopping 68% up on a year ago, while the number of struggling leisure and culture businesses has risen by 60%. And it's pretty clear why: with prices rising faster than wages and the latest wave of (actual or threatened) redundancies battering consumer confidence, many of us are choosing to hang onto our pennies rather than frittering them away on a nice meal out. But what should we read into the fact that professional services is also among the hardest-hit sectors?

The Red Flag Alert is closely-watched because it's seen a forward-looking indicator of the state of the economy; some of these companies getting into bother now are likely to shed jobs further down the line. And in that sense, the picture revealed by today's data isn't pretty: all told, Begbies (home of MT blogger Nick Hood) says 186,554 suffered signficant or critical financial problems during the first quarter of 2011. That's a 15% increase on the same period last year, and a 26% jump from the previous quarter; although there's almost always a rise at the start of the year, it's not normally as big as that. Bebgies also points out that there's been a big rise in legal actions against debtors - which is worrying, since it suggests that creditors are running out of the patience they've shown since the start of the recession.

Not surprisingly, those sectors most reliant on discretionary spending seem to be suffering the most, as consumers tighten their belts (as Begbies points out, many of those being made redundant in the public sector will know by now, so that's bound to hit overall confidence). So although lots of bars and restaurants are having a hard time, the distress figures for food retail businesses as a whole have barely changed - suggesting that people are choosing to buy their own food, rather than go out for it. And who can blame them?

One notable aspect of today's figures was that professional services firms appear to be much worse off than this time last year - there's been a 61% jump in the number of companies in difficulty, to more than 15,000. Begbies chairman Ric Traynor suggested this was 'partly driven by a stale property and corporate deals market'; given their 'high fixed cost base', the sector was always going to struggle if revenues failed to recover, he said. It's a reminder that if we punters are spending less, the effects will be felt throughout the whole economy...

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