French SMEs under pressure as insolvencies leap

French business insolvencies are fast-rising, particularly among SMEs as they struggle to cope with a combination of rising energy costs, falling consumer purchasing power and the obligation to repay state-backed loans taken out during the Covid-19 pandemic.

Latest analysis from consulting firm Antares says the combination of these factors can create a “recipe for disaster”, particularly for smaller retail businesses.

The firm reported that the number of French business failures jumped 35% in the second quarter compared to the same period last year, putting 55,000 jobs at risk by the end of 2023, from 42,500 in full-year 2022.

Antares reported that the number of business closures reached 13,226 in Q2, up from the 9,826 recorded at the same time last year. This is the highest level since the start of the Covid-19 crisis in March 2020.

Thierry Millon, the report’s author, told European reporting service EURACTIV that this trend should be a “cause for alarm”. He said: “We need to bear in mind that the economic reality of tomorrow will not be as good as what it was pre-Covid.”

As elsewhere in Europe, the number of bankruptcies in France fell sharply during the pandemic, mainly because of support from government.

But insolvencies in France started to rise by last August as firms struggled to recover from the pandemic-induced economic crisis.

SMEs are particularly vulnerable. In this sector, insolvency proceedings have increased by 55% in the past year.

“There is a great deal of pressure on SMEs and ETIs [intermediate size companies],” Millon said. He added that an increase in energy costs, a fall in purchasing power and the need to repay state-backed loans are the main problems.

Figures were particularly high for clothing shops, where the number of bankruptcies increased 72% in the second quarter of this year compared to the second quarter of 2022, said Antares.

The increases in bankruptcies were also high in the fast-food sector (up 64%), restaurant businesses (up 53%) and the beauty salons and hairdresser sector (up 35%).

“Small local shops are left aside by consumers, who favour bigger and cheaper shopping centres. But the closure of small businesses directly impacts their providers,” Millon told EURACTIV, warning of a trickle-down effect.

The recent French riots will not have helped smaller retail businesses.

The French insurance association France Assureurs reported this week that the total cost of claims to date for damage caused by the riots has reached €650m.

Claims on private property represent 55% of this total while local authorities account for 35%.

The association said that the nature of the claims are therefore very different from that of the 2005 French riots, when damage to vehicles represented 82% of claims from a much lower total cost of €204m.

France Assureurs has invited its members to extend up to 30 days the claim declaration period, which is generally set at five days in insurance contracts, to help beleaguered SMEs at this difficult time.

The association has asked its member to speed up the compensation process in “full coordination” with claims firms to organise appraisal visits as quickly as possible and prioritise the most sensitive cases. It also suggested that insurers should facilitate the payment of installments to deal with the most difficult situations.

“Members should take into consideration, on a case-by-case basis, the situations of the small independent traders hardest hit by this urban violence, who would be in economic difficulty, and reduce the effect of their contractual franchises,” said the association.