Sector: Retail

Topic: Coronavirus

Moderate success in the retail sector

By Richard Kleiner

27 May 2020

Boris Johnson’s latest Covid-19 update has provided a timeline for the retail sector to reopen in June, which will mark two months of limited trading. 

  1. From 1 June, outdoor markets and car showrooms will be able to open, provided they meet Covid-19 protection guidelines
  2. From 15 June, all other non-essential retail and indoor markets will be able to open, provided that the government’s five tests are met and the outlets meet Covid-19 protection guidelines.

This article focuses on three key sectors of the industry and how they have responded to the outbreak so far. 

Ecommerce 

For retailers deemed non-essential, i.e. not food or medicine related, ecommerce has been the main source of cash flow. Some companies have had to rapidly adapt and create an online presence, which they did not already have, in order to survive the pandemic. Others, such as, Dixons Carphone have seen a significant increase in their online sales, increasing by 160%, which accounts for more than one third of the loss of their retail sales.  

As consumers started to adjust to the new circumstances, there were waves in demand across different types of goods as panic buying set in over the first few weeks of March. The image below details the year-on-year growth for March to April 2020, which clearly demonstrates this. 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

Although the cash flow generated by ecommerce is welcome, it must be noted that this is not sufficient to sustain the industry long-term. According to the Office of National Statistics (ONS), 64% of businesses in the industry* experienced a decrease in revenue (during the period 6 April to 19 April 2020). 

It’s been interesting to see how businesses that would not ordinarily focus on digital channels have used this time to optimise, capitalise on and, in some cases, begin their online offerings. The pandemic has already begun to shape the industry, forcing some to modernise, and may signify the new normal for high street shops.

Supermarkets 

Supermarkets have found a silver lining as they have seen a significant increase in demand over the last two months. 
In the earlier stages of the pandemic, consumers started to stockpile, putting a strain on the supply chain. Additionally, as the government encouraged the public, particularly the most vulnerable people, to order their shopping via delivery services, some sites crashed and had week-long backlogs. However, once people adjusted, this strain was alleviated and supermarkets have been managing well, hiring large swathes of temporary staff to safely manage their operations.

Some reports say that sales are up by around 50%, exceeding Christmas revenue from 2019. However, Bruno Monteyne, previously a supply chain director of Tesco, predicts that the disruption could cost the sector £1.2 billion; the “Big 4” are still competing for cost leadership whilst hiring hundreds of new staff to cope.  

Food delivery and takeaways 

The government allowed restaurants to continue serving food via deliveries and collections, relaxing planning rules to allow pubs and restaurants to offer takeaway services. This has acted as a lifeline for restaurants, cafes and pubs, which would otherwise have no cash flow - a vital lifeline, particularly for SMEs.

Similarly to supermarkets, restaurants, pubs and associated delivery services, such as JustEat and Deliveroo, have seen significant increases in orders. According to Statista, 31% of people in the UK have spent more than usual on food, including takeaways and deliveries, during the pandemic. 

Although business in this sector are experiencing a decline in cash flow, this opportunity has likely kept many businesses afloat.

Outliers 

However, there are some retailers that have not yet adequately adapted to the evolving market and are suffering the consequences of the pandemic. For example, Primark, a clothing company owned by Associated British Foods (AB Foods), has seen a decline in monthly sales from £650 million to zero revenue as they have no online presence or click-and-collect offering. 

Although AB Foods has a healthy cash flow to support the company, shares have fallen from 2255p at 28 February to 1825p at 26 May.   
The ONS stated that 20% of UK businesses have had to “temporarily close or pause trading”, seeming to be a more widespread issue (figures based on the period 20 April to 3 May 2020). 

Conclusion

The pandemic has been quite lucrative for supermarkets and the government’s relaxation of key regulations has provided a lifeline for restaurants and other food establishments as they have been able to adapt and offer delivery and collection services. Additionally, it has forced some businesses to modernise and adapt to changing consumer preferences, which could be beneficial in the long run. However, disruption to cash flow, changes to hiring patterns and decreased consumer confidence could negate any benefits, at least in the short-term. 

Now that the government has announced its plan for lifting the lockdown and reopening non-essential retail, many of us are looking forwards, planning for the return to work, which is now within reach.

If you are seeking advice on any of the above topics, please contact us at hello@geraldedelman.com.

 

*Industry referred to in the ONS survey was “Wholesale and retail trade; Repair of motor vehicles and motorcycles.”

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