Recent high profile failures in other sectors (namely the travel and construction sectors) show the danger of operating on micro profit margins and the same thing could be heading to the Garden Centres industry in 2011. 383 companies in the market exist on low profit margins of less than 1.5% with 225 of these making a loss. Any bump in the road will be enough to see them fail because they cannot rely on cheap credit to see them through anymore.
Of course, there are some perfectly good companies being turned down and it is essential that banks should play their part in getting business moving again. However, nobody should blame them for refusing credit to companies that might not be able to pay it back. Many companies are turning up at the bank saying “We spend almost as much as / more than we make”. The financial sector was correctly vilified for reckless lending that lead to the economic crisis but in at least 383 cases in the Garden Centres industry they are right. If banks are to meet government and electorate demands to lend responsibly then many companies with consistently low margins pose too big a risk.
It also seems that debt levels have little to do with the ability to secure funding. Even companies with minimal or no debt are struggling to get credit if they have thin margins. There is simply too much risk attached. We picked 126 such companies in the UK Garden Centres industry who have little to no debt but have profit margins that are just too thin.
On the flipside, there is good news for 157 prudent companies that made tough decision early and focused on the bottom line instead of chasing sales over the last few years – they now have the edge in the market. Ironically, these are the companies that the banks are most willing to lend to. One or two of these solid companies should look to capitalise on this advantage and borrow money to invest in their future through a couple of smart acquisitions.
The new Plimsoll Industry Analysis – Garden Centres will tell you instantly which companies are prospering in the post recession market place, those set to be bought out and those heading for trouble – across the whole of the market and in the individual regions.
It gives an instant performance rating on 693 companies and highlights those ripe for acquisition. Each company is assessed using the Plimsoll Model – A graphical and written analysis that lays bare the facts and gives you instant opinion.
Readers of Garden Centre Update are entitled to a £50 discount of this new special edition of the Plimsoll Industry Analysis – Garden Centres. Call 01642 626400 for further details and quote reference PR/AA34.