Fashion, luxury and lifestyle news aggregator - March 2020

Posted: 27/03/2020

Monsoon Accessorize has extended its supplier payment terms from 90 to 120 days to manage cashflow and protect the long-term future of the business. Likewise, Debenhams has extended its supplier payment terms by 30 days and has asked landlords for a five-month rent holiday, starting immediately, as it struggles to deal with the disruption.

In a similarly-motivated move, Superdry has asked its landlords for a three-month rent break, beginning 1 April 2020, in what it describes as an “extraordinary time for all of us” with the pandemic leaving a “deep and lasting impact on society and the world economy”. Superdry has now lost 80% of its value and is now worth £90 million. Even the value of online operator, Asos, has dropped by two-thirds to £882 million.

As of 23 March 2020, the Prime Minister announced a shut down of all non-essential retail for at least three weeks. During this period, the British public are only permitted to leave their homes under limited circumstances. They may leave their houses once a day for exercise, getting essentials such as food and medicine, or caring for someone with urgent medical needs. This has led to all shops selling non-essential goods, including clothing retailers, to shut until further notice.

Even prior to the Government’s enforced lockdown, Arcadia, owner of Topshop and the largest UK retailer, had closed all stores across its fashion empire in response to the coronavirus pandemic. Calvin Klein, Harrods, Zara, Burberry and countless other retailers had also announced store closures. One of these retailers was the John Lewis Partnership, marking the first time for closure in its 155-year history, having opened throughout both the World Wars.

There has been a reduction of high street footfall by upwards of 30% year on year. Mirroring that figure, Next also warned that its full-price sales have plummeted 30%.

Prada Group, the Italian luxury giant, has announced that coronavirus has “interrupted growth”, despite announcing an increase in revenues for the year to 31 December 2019.

M&S has announced that it may not meet profit targets, as a result of its clothing and homeware business being “significantly impacted” by the outbreak. In response, it has cancelled £100 million in clothing orders and scrapped dividend payments.

Frasers Group (formerly Sports Direct International plc) also warns of failure to meet its 2020 growth targets. It believes it will fall short of earnings before tax and interest growth of between 5% and 15% for the year ending April 2020. For a short period after the Government’s lockdown announcement, Sports Direct bosses attempted to resist the mandatory closures on the grounds that selling sporting and fitness equipment makes the company a vital asset, meaning they are “uniquely well placed to help keep the UK as fit and healthy as possible’. However, this resistance was met by criticism from politicians and the public, resulting in the group agreeing to close its doors until given the go-ahead from the Government.

Primark had also closed all its 189 UK stores, having already shut 187 stores across Europe and the US. With no online shopping business to offset lost in-store sales, it has also cancelled all new clothing orders from suppliers. But it has confirmed that it would honour all orders which have already been shipped or delivered to its warehouses and stores.

Earlier this month, Amazon announced that it planned to stop receiving non-essential products from sellers to free up inventory space in its US and UK warehouses. The essential products include baby products, health and household, beauty, grocery and pet supplies. To cope with the surge in online demand, it will also hire 100,000 more workers.

Louis Vuitton’s perfume factory, usually creating high-end perfume bottles for Christian Dior, started turning out hand sanitiser for hospitals within 72 hours to help fill gaps of key medical supplies as the spread of the virus accelerated in France.

Similarly, M&S and Waitrose are implementing special shopping hours for the elderly and vulnerable and NHS/emergency workers.

The majority stakeholder-investor of Reiss, Warburg Pincus, has postponed the upcoming acquisition of the fashion retailer and has also temporarily closed its stores.

As the first high-profile retail victim of the coronavirus, Laura Ashley filed for administration, putting 2,700 jobs at risk across 153 stores in the UK. This follows less than one month after it agreed a funding lifeline with Wells Fargo.

Better news

However, some better news came this month as the Chancellor, Rishi Sunak, announced an “unprecedented package” of measures designed to combat the disruption. The Chancellor and the Bank of England have confirmed they will do whatever is necessary to support businesses throughout this process.

The UK Government’s measures, which go beyond most other countries in terms of per-capita spending commitments, include:

• extending the business rates holiday to all retailers for 12 months;
• the provision of £330 billion of government-backed loans and guarantees for UK businesses, in addition to the £7 billion already announced in the March budget. For instance, a new Coronavirus Business Interruption Loan Scheme (CBILS), delivered by the British Business Bank, will enable businesses to apply for a loan of up to £5 million, with the Government covering 80% of any losses with no fees and interest free for 12 months (previously six months). For more information, see our latest insight into the CBILS, as well as the Government’s eligibility criteria;
• covering 80% of wages up to a total of £2,500 a month to save jobs during the crisis, backdated to 1 March 2020 and initially available for three months but pledged to extend for longer if necessary;
• deferring the next quarter of VAT payments from businesses (saving £30 billion). This means that no business will pay any VAT from now until the end of June 2020. Self-employed workers’ next tax self-assessment has been deferred to January 2021;
• for business with fewer than 250 employees, the Government will refund in full the cost of 14 days of Statutory Sick Pay per employee;
• the new Coronavirus Job Retention Scheme is available for any employer in the country;
• struggling retailers and pubs will be entitled to up to £25,000 in government grants;
• cash grants will also be available for the UK’s smallest businesses of up to £10,000 (previously £3,000). It is thought about 700,000 firms will be eligible for this; and
• the Bank of England has cut interests rates to 0.1% from 0.25%. It has also announced an emergency £200 billion bond-buying programme.

While the retail and fashion industry as a whole has welcomed the state support, there is some concern among retailers that the loan system will become complex and that actually receiving the cash injection may be delayed. In any event, additional governmental support will be required in the coming weeks and months if businesses are to survive.

The Chancellor confirmed that he is “placing no limit on the amount of funding available for the scheme” and that further measures will be spelt out in the coming days and weeks to ensure that larger and medium-sized companies can also access the credit they need. The VAT deferral is a vital lifeline for thousands of firms and millions of jobs in UK retail.

Ted Baker welcomed the Government’s business rates holiday for the next 12 months, highlighting that it had paid business rates of £6.2 million in the current financial year. The fashion retailer also announced it has exchanged contracts with a wholly-owned subsidiary of British Airways Pension Trustees Limited in respect of its London headquarters, in a consideration of £78.75 million. The net proceeds will be applied to repay existing debts.

The Financial Conduct Authority (FCA) has asked businesses, including many retailers and all listed companies, scheduled to produce preliminary trading updates in the next few days to delay them due to disruptions caused by the coronavirus. All companies are to observe a moratorium on the publication of preliminary financial statements for at least two weeks to release the pressure. The FTSE 100 index has lost more than 28% of its value since 21 February 2020.

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