Company failures are not increasing, analysts say

First, there was the COVID pandemic and the associated production shutdowns and disruptions to supplies and sales. Then there was the Ukraine war, followed by the energy and inflation crises. Many analysts have feared the possibility of a more massive wave of company and business failures for the past three years. But so far, they have not taken place.

The evolution of bankruptcies, or their comparison across time series, is more akin to a seesaw. Although the current negative outlook is compounded by downtime in the automotive industry and the insolvency of some well-known brands, most recently the eyewear retailer Eiffel Optic, the number of failing firms is not dramatically increasing.

“In terms of long-term trends, there were year-on-year declines in business bankruptcies from 2014 to 2018. However, the development of year-on-year changes in the number of bankruptcies from 2019 to 2022 is variable,” Ondřej Pirohanič of CRIF – Czech Credit Bureau, which tracks detailed information on companies, confirmed in his analysis.

According to him, before the pandemic hit in 2019, there was a four percent increase in bankruptcies, while in 2020, when COVID first hit, there was a 12 percent drop.

This was followed by a 23 percent increase in 2021, the highest year-on-year percentage increase in business bankruptcies since 2010.

“But last year saw a six percent drop compared to 2021,” Pirohanič added.

Supermarket chain Iceland went out of business last year, and brands like Dedoles went bankrupt. Hervis Sport and Orsay have also started to withdraw from the market. In contrast, forty new brands entered the country, a third of them fashion brands.

But according to the Association for Electronic Commerce, online store turnover fell for the first time ever, down 12 percent year-on-year.

For the ten defunct and eighteen new

More significant reductions are expected during this half of the year.

In addition, after eight years, payment morale among companies has started to deteriorate, with the average delay in paying an invoice increasing by two days to 23 days, according to the collection agency EOS KSI.

In January of last year, 1,550 companies in the Czech Republic went out of business. While this is the most since March 2020, many new businesses were created; 2,805 were founded. In both cases, this is above average.

“There was a noticeably high turnover of companies in January. The highest number of companies were founded in almost two years, but at the same time, a large number of them disappeared,” confirmed Věra Kameníčková from CRIF.

In total, the number of companies in the Czech Republic has increased by 14,241 since February last year, less than two and three years earlier, according to CRIF.

However, the net increase in the number of companies, i.e., the difference between the number of new companies and the number of companies that have disappeared in the last 12 months, has not reached the level of the two years before the pandemic.

“Bankruptcies make up only a minor part of the companies and sole traders that have disappeared,” analyst Kameníčková said.

According to her, courts declared fewer bankruptcies of companies and sole traders in 2022 compared to 2021. The number of defunct companies did not change significantly, but the number of defunct sole traders increased significantly, Kameníčková added.