New Look faces fresh blow as insurer cuts cover for suppliers

New Look is coming under fresh pressure after an insurer stopped selling cover against insolvency to its suppliers, in the latest sign of difficulties for retailers amid a squeeze on consumers’ spending power.

The troubles for the high-street fashion chain come after a difficult Christmas for many leading retailers.

Credit insurer Euler Hermes is understood to have halted the sale of protection against insolvency to suppliers of New Look, although is still expected to cover any shipments with protection signed before it made the decision to stop fresh sales.

The Sunday Times, which first reported the story, said another insurer had reduced coverage levels to suppliers of New Look, but had not withdrawn sales altogether.

Credit insurance protects suppliers against the risk of a customer going bust during the period between an order being accepted and payment being made. The loss of such protections can have disastrous consequences for a retailer, having played a part in the demise of high-street names such as Woolworths, Focus DIY and Zavvi.

Without cover, retailers can struggle to buy sufficient levels of supplies or can be forced to accept more onerous payment terms.

New Look, which has a debt pile of more than £1bn, has seen a drop-off in sales in recent months, with revenue falling by 4.5% to £686m in the six months to 23 September. The company said at the time it had access to £242.5m in cash, which it said was “adequate” for its needs despite tough trading conditions.

Controlled by the South African tycoon Christo Wiese through his Brait private equity vehicle, the company received another blow in December when the credit ratings agency Moody’s downgraded its debt to junk status. Wiese resigned from the board of South African retailer Steinhoff last month, where he was the largest shareholder, after accounting irregularities came to light.

Steinhoff is also the parent company of Poundland, which had seen an insurer cut the level of coverage to its suppliers last month. The discount chain said at the time it was “profitable, cash-generating and trading very strongly”.

New Look is attempting to stage a turnaround, after rehiring former executive chairman Alistair McGeorge to help stem falling sales. He is expected to give an update on the firm’s strategy early next month alongside its latest sales update, which will include the key Christmas shopping period.

New Look and Euler Hermes declined to comment.