Commercial Insights - Retail: picking up the pieces post lockdown.
Stephen Springham notes that retailers could open from June but are likely to take a cautious approach in doing so, and highlights that the June quarterly rental payment date could be an even greater pinch point than in March.
3 minutes to read
What we know
When the high street lockdown will be lifted. “Non-essential” stores come under Step 2 of the UK government’s “roadmap out of the lockdown” plan, which becomes operational from 1 June. Leisure (including F&B) falls under Step 3 of the plan, which comes into force a month later (i.e. from 1 July). These dates are provisional and highly conditional on a number of targets being met (although there isn’t much transparency as to what these targets actually are).
Footfall and retail sales remain in freefall and many retailers are still operating on a zero or minimal cashflow basis. Footfall was down -84.7% year-on-year in April. Retail sales slumped by -19.1%, unsurprisingly the worst monthly performance since records began in 1995. Although online sales spiked by +57.9% to reach a record high of 69.9% of all non-food sales, the key message from most operators is that online is only picking up a limited proportion of lost store-based sales.
What we expect
Retailers are likely to take a softly-softly approach to re-opening, rather than try to re-commence trading with all guns blazing. There is a sense of relief that that enforced closures may soon be coming to end and cashflows can recommence, but this is overshadowed by concerns of how to adapt stores to make them compliant to social-distancing and complete uncertainty over potential trading volumes in both the short and medium-term.
"Realistically, few retailers are anticipating a return to “normalised” trading levels until this time next year…"
It is highly unlikely that every shop across the land will re-open on 1 June. Retailers are currently reviewing their portfolios to explore which ones lend themselves best to social-distancing measures and to understand the costs involved (additional door/security staff, inflexible movement of instore personnel, perspex screening, floor taping, additional POS). It follows that stores with larger floorplates are likely to be given priority. In terms of a broad pecking order, this would suggest the following re-opening sequence – retail warehouses, high street and then shopping centres (with Leisure last of all).
June’s quarterly rent day will be an even greater pinch-point than March’s. Most retailers are in a far worse cash position now than they were a few months ago. We project that only between 10% and 20% of retailers will meet their Q2 rent obligations in full and on time – most will seek landlord concessions.
What we question
The prospect of a rapid “bounce back” in consumer demand. The “pull” factors (pent-up consumer demand) will be far outweighed by three key formidable “push” factors, certainly in the short- to medium-term.
- Consumer reluctance to return to public spaces (especially retail stores)
- Stores that are open adhering to social-distancing compromises
- Genuine economic concerns (especially around job security)
The timeframe on any recovery. Most retailers are already looking to Christmas as the first point of meaningful temperature check. But recognising there are considerable pinch-points before then (e.g. quarterly rent days in June and September and the prospect of changes to the government furlough scheme etc). Realistically, few retailers are anticipating a return to “normalised” trading levels until this time next year, at the earliest. Even then, Christmas 2021 may be a more realistic barometer.