Retail Emerges as Most Distressed Sector in Europe, Report Says

Retail is now the most distressed sector in Europe, overtaking industrials and real estate companies, according to Weil, Gotshal & Manges’ latest measure of corporate distress in the region.

Retail and consumer goods companies are suffering from weak discretionary spending, margin compression and tightening credit conditions, the report said, pushing distress to the highest level since the global financial crisis in 2009. The deterioration has been rapid, with retail jumping two spots among sectors in Weil’s European Distress Index since the firm last published the report in April.

“The sector has experienced a steep rise in distress over the past quarter,” the report said. “Ongoing uncertainty around tariffs has also impacted supply chains and negatively affected retailers exporting to the US.”

Retailers are not alone. Corporate distress across Europe climbed to its highest level in nine months in May, while seven of ten industry groups have experienced worse conditions compared with the previous quarter, according to Weil’s report. Among countries, Germany remains the most distressed market, the report said.

Companies are suffering amid a challenging macroeconomic environment in Europe, exacerbated by geopolitical uncertainty, trade tensions, conflicts in the Middle East and Ukraine, and volatile financial markets, the report said. The total level of distress in Weil’s index has climbed in seven of the past nine months.

The report defines distress as uncertainty about the fundamental value of financial assets, volatility and increase in perceived risk. Common characteristics of corporate distress range from pressure on liquidity, reduced profitability, rising insolvency risk, falling valuations and reduced return on investment.

“This deepening retail distress has become a bellwether for a wider trend: corporate distress across Europe has accelerated more sharply than anticipated at the start of the year,” the report said.

By Edward Clark

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