Long term fears over reduced consumer spending have become overshadowed in recent weeks by the erosion of credit insurance across many parts of the IT sector, effectively pulling the financial rug from under the feet of thousands of businesses in the UK.Such insurance, whether provided to distributors or retailers/resellers themselves, has become intrinsic to the industry's ability to buy stock, and trade, with any degree of fluidity. This reliance means that any significant reduction can have devastating effects on trading ability – as it did recently in the cases of High Street casualties Woolworths and Zavvi.
"It could be said that the problem of vanishing credit insurance is probably the biggest one that the channel currently faces, far bigger than any reported lack of consumer credit," Keith Warburton, CEO of trade body the PCA told PC Retail in this month's issue. "Quite simply, the reluctance to being financially exposed has left the channel exposed to the whim and will of the credit insurers, most of who are now running for the hills – some would say quite sensibly so."
The power which credit insurance firms, such as Euler Hermes and Atradius, now wield on the channel is becoming a growing concern for many.
"In the grand scheme of things, insurance companies control the market," a prominent industry figure told us. "They can destroy a company overnight. If we had all of our insurance pulled, we'd be finished. There are quite a few big retailers who are being badly affected. PC World and Dixons are being very badly hit."
When contacted, a DSGi spokesperson acknowledged the widespread shift in insurance levels, but insisted that terms and conditions from its suppliers had not been affected by situation.
Meanwhile, the financial sector itself claims that the reductions are unavoidable – and that in effect the banks are the real root of the problem.
"Because of the change of the economic conditions, underwriters are becoming much more cautious," said Susan Ross, client service director at Aon Trade Credit. "And quite right too. We've all read in the newspapers what's happened to sales of technology goods, and that's why you're seeing a reluctance by credit insurers.
"You've also got to ask why companies are so desperate for this credit – it is because their overdrafts aren't working in the same way and because the banks are reluctant to lend. "They need to have trade credit in order to have cash flow, If you put it in that perspective, credit insurers are sitting behind the suppliers, and they're looking at fortuitous loss, if you look at it as a whole, the banks hold all the cards."
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