Withdrawal of Credit Cover to the UK Retail Industry: A Case on Credit Crisis

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Case Details:

Case Code : FINC054
Case Length : 18 Pages
Period : 2008-2009
Pub. Date : 2009
Teaching Note :Not Available
Organization : Euler Hermes, Atradius and Coface, Woolworths
Industry : Retail and Credit Insurance
Countries : UK

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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.

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Introduction Contd...

The UK retail industry, which also witnessed a significant slowdown in consumer spending in 2008, had been looking forward to the Christmas shopping season to boost its sales (Refer to Exhibit I that shows the trend in Household Final Consumption Expenditure in the UK from 1997 to the third quarter of 2008).

However, the withdrawal of credit insurance in November 2008 affected a number of retailers as suppliers stopped delivering products to them. The credit crunch pushed a number of retailers into administration and closure, while others faced their financial problems by cutting costs significantly and establishing online presence.

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In a number of cases, trade credit insurance was a prerequisite for small and medium companies to approach banks and financial institutions for credit. In its absence, a number of bankers withdrew credit, expediting the fall of these companies. Describing the situation, David Stoddart, Analyst at Altium Securities⁸, said, "A general withdrawal of credit insurance could cause a big headache for some leading names in UK retailing. This could mean supplies drying up and ultimately empty shelves. That can't be a good thing at this time of year especially."⁹

Excerpts >>

8] Altium Securities is a European securities trading company which is part of the Altium investment banking group of companies based in the UK. It is a security house focused on small and mid cap securities across market sectors.

9] Kieran Stacey and Elizabeth Rigby, "Credit Insurance Takes Centre Stage," http://uk.biz.yahoo.com, October 08, 2008.

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