BRC Quarterly Credit Conditions Monitor Q3 2009

July - September 2009

Table of Contents

1. Results 1

2. Trade Credit Insurance 4

3. The Sample 8

1. Results

Main ResultsOur survey showed credit conditions remained stable for most retailers in Q3 2009. However, SME retailers continue to face problems attaining credit, over a quarter claiming that credit conditions had got worse. Both large and small retailers continue to face problems associated with trade credit insurance.

1

85% of large retailers and 68% of SME responding claimed that credit conditions had remained the same over the last three months (July – September). 28% of SME respondents claimed that credit conditions had deteriorated further in Q3 2009, but no large retailers reported conditions worsening.

Of those SME retailers that experienced a further contraction in credit;

– 29% have reduced staffing levels

– 24% have reduced inventory levels

– 19% have reduced capital expenditure

85% of large retailers and 56% of SME retailers responding claimed that the cost of credit had not changed in Q3 2009. 8% of large retailers and 38% of SME retailers claimed that the cost of credit had increased.

The reduction or withdrawal of trade credit insurance has affected 38% of large businesses and 28% of SMEs in Q3 2009.

92% of large retailers and 74% of SMEs thought that insurers were not in a position to assess risk accurately

When asked about the Government’s Trade Credit Insurance Top-up Scheme, 85% of large retailers and 95% of SME retailers claimed that the scheme had not worked. As a result, 54% of large retailers have used other arrangements – most using early settlements.

When asked if the top-up scheme should be extended beyond its planned closure on 31 st December 2009, 77% of large retailers and 59% of SME retailers agreed that it should.

Credit ConditionsOur survey revealed that credit conditions had remained the same for 85% of large retailers and 68% of SME retailers in Q3 2009. Over a quarter of SME retailers responding claimed that credit conditions had deteriorated further. However, no large reported credit conditions worsening.

2

In the last three months, have credit conditions offered by your bank:

If credit conditions have worsened, what has the impact been?

15%4%

85%

68%

28%

Large SME

Worsened

Stayed the same

Improved

Reduced stock levels

24%

Changed stock lines

14%

Changed supplier

payments14%

Reduced staff levels

29%

Reduction in capital

expenditure19%

Note: SMEs only

Credit ConditionsThe survey showed that the cost of credit remained the same for the vast majority of large retailer, while less than one in ten claimed that the cost had increased. However, almost two in five SME retailers claimed that the cost of credit had increased in Q3 2009.

3

Has the cost of credit from your bank increased in the last three months?

8%

6%

8%

38%

85%

56%

Large SME

Increased

Decreased

Stayed the same

2. Trade Credit Insurance

Trade Credit InsuranceThe survey confirmed that withdrawal of trade credit insurance continues to plague the supply chain of many retailers. Almost 40% of large retailers claimed that they had experienced disruptions in their supply chains as a direct result of trade credit insurance being reduced or withdrawn in Q3 2009.

4

In the last three months have you experienced disruptions in your supply chain as a direct result of trade credit insurance being reduced or withdrawn from your suppliers?

62%72%

38%28%

Large SME

Yes

No

If you have experienced problems in your supply chain, can you estimate what proportion has been affected?

100%

38%

46%

15%

0% 50% 100%

Less than10%

10-25%

25-50%

SME

large

Trade Credit Insurance

4

Do you think that trade credit insurers are in a position to be able to assess risk accurately?

It is clear that retailers do not believe that insurers are in a position to accurately assess risk.

“They have insufficient real-time data for their key risks.”

Anecdotal Evidence

“They are naturally conservative due to volatility and changing circumstances of credit.”

“Some credit insurers appear to have a lack of understanding of individual companies - they apply

industry-wide criteria to individual companies without looking at specific company circumstances (e.g. group structure, funding levels, profitability). The risk assessors at the credit insurers appear impotent/apathetic to override the industry-wide

risk factors that have been set by the insurer's risk committee. It is easier for the risk assessors to just

repeatedly say "No cover" rather than argue for the insured company, with the risk that this then

backfires personally on the assessor.”

92%

74%

8%

26%

Large SME

Yes

No

Top-up Scheme

The survey showed that the vast majority of retailers believe that the trade credit insurance top-up scheme has not helped. However, most retailers believe that the scheme should be extended past its current deadline.

6

Has the introduction of the Government’s Trade Credit Insurance Top-up Scheme helped maintain the supply of goods to your business?

85%95%

15%5%

Large SME

Yes

No

The Government’s Top-up Scheme is due to stop on the 31st December 2009. Do you think it should be extended?

23%

41%

77%

59%

Large SME

Yes

No

Top-up Scheme

Over half of large retailers responding to the survey had used alternative arrangements to counter the problems in the trade credit insurance market.

6

Have you used other arrangements to counter problems in the trade credit insurance market?

46%

91%

54%

9%

Large SME

Yes

No

“Accelerated payments for a discount. Investigating new factoring products for suppliers.”

“Agreed alternative payment schedules.”

“ Payment on account, changed suppliers, cross-company guarantees.”

“Early payment”

“Attempted to move to early settlement discount.”

If yes, what arrangements have you used?

3. The Sample

The Survey Sample

The BRC Credit Conditions Monitor is comprised of 63 respondents

9

Large Retailers SME

Mixed Retailers34%

Convenience13%Clothing

13%

Department Stores

13%

Electricals20%

Supermarkets7%

Clothing45%

Hardw are4%

Electricals9%

Mixed Retailers

29%

Department Stores13%