UK’s small retailers facing a fight for survival

The Small Business’ battle ahead

Shops on our High streets will welcome back customers after more than ten weeks of lockdown. However, experts have warned the coronavirus outbreak has accelerated the troubles many retailers already faced prior to the enforced closures.

It isn’t just the little guys that have given up the struggle; several well-known chains including Cath Kidston, Laura Ashley, Oasis and Warehouse have all collapsed since coronavirus forced UK retailers to shut up shop. Regretfully it is increasingly looking more and more definite that many more companies, and even the landlords who let their properties, will struggle to navigate the waters ahead.

The high street was already in trouble

The rise of internet retail sales, spearheaded by Amazon and Ebay, has only demonstrated that the high street wasn’t quite meeting the challenge of a changing customer base before the global pandemic, so efforts will be needed to be doubled now.

Rick Smith, managing director of business rescue and insolvency experts, Forbes Burton said:

“Many names have vanished in the past decade and a lot of recognisably successful chains are teetering on the edge. It is also true that large-scale recovery is unlikely due to restrictions on opening, customer confidence and a general reluctance to spend following the lockdown period”.

The Small Business’ battle ahead

The government’s plan to get retail and leisure operators back up and running poses significant challenges. Many of my retail clients are asking how can we and other small businesses trade successfully whilst observing social distancing, safeguarding the health and safety of staff and customers. As well as protecting ourselves against health and safety and employment law risks?

The truth is that it’s an impossible balancing act in most cases, partly because of cost and the sheer impracticality of these measures in the smaller retail stores and partly because the near certain reduction in trading turnover is likely to continue until coronavirus is effectively beaten by an effective programme of vaccination, which potentially could take years.

The great other unknown, which has got accountants, economists and retail experts collectively scratching their heads, is have the great British public’s buying habits permanently changed?

What has the government proposed?

Any retailer who qualifies as a business that provides an ‘essential’ service such as food retailers and pharmacies, has never been closed but it was initially unclear what the term ‘essential’ meant. It took a fortnight of confusion before take-a-ways were included, subject to social distancing and other measures.

Then last month home improvement stores and garden centres were allowed to reopen, followed by car showrooms and outdoor markets on 1st June. The big date is, of course, Monday 15th June, when all non-essential high street shops and shopping centres will be able to reopen, but only if they can adequately manage the risks.

Pubs and restaurants, however, will have to wait a tad longer and even when the green light is given, likely in the next month, initially only outdoor areas will be allowed to be used.

Retail Restrictions on opening

The government has said that providing its five key tests are being met, the easing of lockdown will continue, but these tests are largely to do with the NHS and the ‘R’ number. Most retailers will likely incur high costs to refit their premises, alongside investment in health and safety equipment, hand sanitisers, and possibly additional staff to police the stores.

Retail shop owners have a legal obligation to keep staff and other people entering their premises safe from harm, and Covid-19 is a risk like nothing we have ever seen before. Given the limitations on customer numbers and lingering anxiety about using public transport or congregating in crowds, some retailers will have to restructure and rearrange business models to have any chance of survival.

High Street Going forward

Many customers may naturally be reluctant to return to the high street when they are unsure of their safety. It is also likely that supply chains may be disrupted for several months and so deliveries, stocks and general business operation may prove difficult as demand grows to hopefully pre-lockdown levels.

Most businesses will have to reconsider how they operate in future and consider pivoting to online or takeaway models or even exiting part of their regular market entirely. Retailers may need to reassess their locations too, is the high street or shopping centre the best place for them right now? It is a salient fact that online sales currently account for around 20% of total sales. However, as new technology has had to be adopted during recent measures, online sales will continue to rise at the expense of regular retail.

Business confidence

Research by Sage found the severe financial challenges are projected to continue for small and medium businesses (SMBs) until at least late Autumn. Their quarterly survey of 500 SMBs revealed that 61% are currently operating at a loss. And over 50% expect this to continue beyond the end of June.

Sage also reported sales at 40% of businesses have at least halved since the beginning of the pandemic, and most do not expect this to improve significantly until late July. Despite the support provided by the government’s furlough scheme, nearly half of all small businesses are considering redundancies over the next three months.

There is also a significant and growing divide between the sectors as the crisis continues, as the retail and hospitality industries remain at a standstill, the financial fortunes of these businesses are diverging even further from those of the average SMB. They will also face a whole different set of operational challenges.

Will we ever get back to normal?

The quick answer is yes, we eventually will, but it will be a new type of ordinary. Small speciality retailers will probably achieve pre-lockdown levels of trade. However, unfortunately, any that were already under threat by the online retailers are likely to eventually go to the wall unless they make significant changes to their marketing strategy, including what they sell.

I also expect pubs and restaurants to, by and large, make a full recovery. However, there will be considerable casualties; retail experts anticipate that this sector will have shrunk by possibly as much as a quarter by the end of 2021. The final nail in the coffin likely to be administered by HMRC, when they start clawing back the deferred VAT and other taxes.