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Tuesday, 14 September 2010

High cotton prices to hit clothing retailers

The effect of high cotton prices is going to be felt on the UK high street. The recent surge in cotton prices, to a 15 year high, is likely to put added pressure on clothing retailers who will also be looking ahead to the VAT rise next year.

Of course, it may be that they can pass on their higher costs to the consumer but as the market is so competitive I expect that many of them will have no choice but to try and absorb the costs. Future spending cuts will certainly also dampen consumer demand.This will mean that some will not survive.

However, terminal insolvency is not necessarily the end result. Struggling retailers might consider using a CVA if they become insolvent due to the higher cotton prices. If the cotton prices fall, and the profits increase, then our CVAs have a "profit ratchet" in them to allow creditors to receive more money over the lifetime of the CVA.

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