Posted: 06/07/2020
Non-essential retail across England exited lockdown on 15 June 2020, with restaurants, pubs, cafes, hairdressers and cinemas following from 4 July. The Government also confirmed that the social distancing rule would be reduced from two meters to one from 4 July. Boohoo appears to have prematurely exercised this rule, as its suppliers were accused of operating without any social distancing measures in place inside factories in Leicester, allegedly fuelling the virus spread.
Notwithstanding the easing measures, the Government has been forced to introduce local lockdowns quickly. It has confirmed that retailers will be able to re-furlough staff, so long as the employers had used the scheme from 1 March to 30 June. As at 28 June, 9.3 million workers have been furloughed under the scheme, claiming £25.5 billion in salary costs according to the Government’s latest figures.
According to a report by BRC and Opinium, 63% of customers felt comfortable buying groceries in store in mid-June, compared to 51% in early May. For non-groceries, figures increased from 25% to 41% from May to June. This led to UK footfall increasing 45% against the previous week, within a week of shops re-opening. Footfall in shopping centres rose by 45%, with high streets climbing 47.5%. During the second week of open doors, footfall increased by a further 7.7%.
Although supermarkets have continued to trade throughout lockdown, online sales have boomed and e-commerce capacity has more than doubled, all three UK listed grocers (Sainsbury’s, Tesco and WM Morrison) expect little or no full profit increase due to significant coronavirus-related costs hitting profit by more than £500 million, with the most significant cost being staff.
Looking forward, research from Intu and the Javelin Group has found that physical stores will continue to drive retail transactions, with £8 in every £10 by 2025 expected to be generated from brick and mortar stores. That said, in-store sales are predicted to be just one of many services provided, in addition to ship-from-store, customer service, and click-and-collect services.
Consumer spending contracted 26.7% year-on-year in May. Spending on non-essentials decreased by 36.9% year-on-year, with department stores and clothing declining 44.5% and 42.4%, respectively. This was a slight improvement on April.
GDP dropped 20.4% during April, as reported by the Office of National Statistics (ONS). This far exceeds March’s then-record of 5.8%.
With retailers already having confirmed they won’t reopen their entire estate, there has been a significant uptick in restructuring activity in the retail and fashion sector. While the various Government measures seem to have eased financial strain and suppressed such action in the short term, the support will not last forever. It is predicted that the restructuring activity that would have taken 12 to 18 months will be condensed before the end of 2020.
In the short term, at least, retailers continue to make use of the support measures. For example, Oliver Bonas, the lifestyle retailer, secured £3.5 million via the Government’s Coronavirus Business Interruption Loan Scheme (CBILS).
Net sales at H&M, the Swedish retail giant, fell 23% to £7.07 billion in the six months to 31 May. This is despite ‘rapid and forceful action’ having been taken across the business, including in respect to its investments, rents, staffing, financing and product purchasing. Online sales increased 36% during the quarter, but there was still a 50% drop in revenue with 80% of the retailer’s stores being closed.
Nike made a loss of $790 million as a result of a 38% drop in revenues, despite seeing online sales increase 75% during the last quarter. Online sales rose to 30% of its total revenue for the first time during its fourth quarter. Primark is expected to lose two-thirds of profits due to coronavirus, with it initially expecting to clear £1 billion of annual profits.
Sainsbury’s has reported an increase of 8.5% in quarterly sales, as a result of online sales doubling during lockdown. Grocery sales surged 10.5%, with an 87% surge in sales made online. However, the ‘big four’ retailer’s chief executive warned that the growth is not expected to continue, and that profits may take a hit of more than £500 million due to Covid-19.
TM Lewin, just one month after SCP Private Equity’s acquisition in May (via SCP’s investment vehicle, Torque Brands), has fallen into administration and is set to close all 66 stores. In a bid to save costs, the shirt-maker will operate online only from now on. This has resulted in 600 job losses. Harrods publicised its plans to make up to 700 members of staff redundant and Arcadia Group is to cut 500 head office jobs.
AllSaints has launched a proposal for a company voluntary arrangement (CVA), which aims to restructure its store portfolio in the US, Canada and the UK. Creditors will vote on the proposal at the beginning of July, which would see most of its stores move to turnover-rents, and the majority remaining open.
UK luxury carmaker, McLaren, has managed to avert a court battle with its lenders after receiving a financial lifeline from a Bahraini bank. A close escape, as without further funding the company was due to run out of cash by 17 July.
On 9 June, Monsoon Accessorise fell into administration, putting 2,300 jobs at risk. Adena Brands bought the retailer a day later, instantly cutting 545 jobs and closing 35 stores. The latest company reports reveal that up to 157 of its 230 stores could re-open, which is calculated to save up to 2,400 jobs. This comes as an unexpectedly large proportion of landlords agreed to move to base rent deals on turnover. Similar negotiations are taking place across the sector.
On the other side of these negotiations, commercial landlords face similar cash flow pressures and problems caused by Covid-19. Cloud-based commercial property management platform, Re-Leased, calculated that commercial landlords collected just 18.2% of the rent owed on the June quarterly rent collection date. Retail landlords collected only 13.8% of the rent owed, down from 19.8% in the previous quarter.
Mike Ashley’s Frasers Group doubled its shareholding in Hugo Boss, which now stands at 10.1%. Ashley also holds a 12.5% stake in Mulberry, and nearly a 30% shareholding in French Connection. In other news, the Frasers Group has settled out of court with TK Maxx in respect to their dispute over the ‘Brand Max’ name.
Visa and Mastercard face paying out billions in compensation after the UK Supreme Court ruled they breached competition laws. The court found that multilateral interchange fees (MIFs) set by the payment giants restrict competition by their effect, are unlawful and distort fair competition in the UK market. See our article here.
The CMA has blocked JD Sports’ proposed acquisition of Footasylum, following an in-depth Phase II investigation. The Competition Appeals Tribunal is yet to publish the summary of notice, but JD is expected to appeal the decision on the same grounds as were raised during the inquiry.
Adidas’ top HR executive, Karen Parkin, has resigned effective immediately amid an escalating uproar at the sportswear maker over its handling of racism, diversity and inclusion. It follows disgruntlement by employees at Adidas over a comment she made last year, describing a discussion on racism as “noise”. Ms Parkin said that by resigning she wanted to “pave the way for change.”
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