Key questions and issues facing the UK retail sector, an industry that has been acutely impacted by the coronavirus (COVID-19) pandemic, include mitigation strategies, reopening in line with government guidance, and future expected challenges.
COVID-19 Mitigation Strategies
A number of UK retailers are reducing the size of their bricks-and-mortar portfolios and/or seeking to renegotiate terms of leases with landlords (including, in many instances, retailers seeking a move from fixed to turnover-based rental payments) in response to the COVID-19 pandemic. Prominent UK High Street retailers, including John Lewis & Partners, TM Lewin, and Zara, have all announced the closure of a significant number of their bricks-and-mortar stores. A number of UK retailers have entered into company voluntary arrangements (CVAs) with their creditors to reduce their liabilities, including recently well-known UK High Street retailers AllSaints and Hotter Shoes.
While the UK government permitted all nonessential UK retailers to reopen their bricks-and-mortar stores on June 15, 2020, after the lockdown, the British Retail Consortium has reported that UK retailers continue to enhance their online offerings and seek ways to mitigate the depressed revenue in the early part of 2020 caused by the COVID-19 pandemic. UK retail returned to growth in June 2020 as UK retail sales increased 3.4% year on year. This was driven by online sales, which were three times the yearly average and increased 48.2% year on year.
The UK government introduced a Job Retention Scheme in March 2020. The purpose of the scheme was to encourage employers to “furlough” staff and keep them on payroll rather than dismiss them during the COVID-19 pandemic. The scheme was available to any UK employer; under the scheme, the UK government pays 80% of a furloughed employee’s wages up to a maximum of £2,500 (approximately $3,100) per month. More than 160,000 UK retailers participated in the scheme.
The scheme is still continuing although the UK government’s contributions step down to 70% of wages, up to a cap of £2,187.50 (approximately $2,800), in September 2020 and to 60% of wages, up to a cap of £1,875 (approximately $2,300), in October 2020.
From August 2020, the UK government is no longer covering employers’ national insurance contributions and pension contributions for furloughed employees—these must be met by employers. In light of the ability of UK retailers to open their bricks-and-mortar stores coupled with the increase in financial contributions that UK employers must now make to their employees, it is reported that UK retailers are carefully considering the size of their workforces and whether to make redundancies.
According to a study undertaken by the Confederation of British Industry, 8 in 10 of UK retailers had experienced some degree of cash flow difficulties during May 2020. This, and concerns about the impact of the COVID-19 pandemic, led UK corporates to draw down under their credit facilities at a record pace, with 130 companies in Europe and the United States reportedly drawing down at least $124.1 billion from their lenders during three weeks in March.
UK companies, including retailers, drew down significant amounts of capital under their revolving credit facilities (which, in some cases, were not usually drawn) as companies braced themselves to withstand the slowdown caused by the COVID-19 pandemic. UK corporates, including retailers, continue to hold onto cash from company loans on their balance sheets.
Yes. The nonessential retail sector was permitted to open on June 15, 2020. Essential retailers including supermarkets and pharmacies were permitted to stay open during the lockdown period. All retailers are now allowed to open for in-store shopping, provided they do so in line with the following government guidance:
The UK government has issued the following guidance for in-store shopping for UK retailers:
Yes. The UK government announced that, with effect from July 4, 2020, where it is not possible to keep a two-meter distance, people should keep a social distance of "one meter plus." This means that people should remain one meter apart while taking mitigations to reduce the risk of transmission.
All UK government return to work guidance has been updated to reflect the change to the two-meter rule, but employers should still make every reasonable effort to enable employees to work remotely. This will apply to the United Kingdom generally, including nonessential retailers that have already reopened in line with previous guidance.
Since July 24, 2020 the government has required face masks to be worn in shops, supermarkets, and indoor shopping centers. Shops are required to encourage customers to take reasonable steps to promote compliance with the law. Shops can deny entry to anyone not wearing a face mask if they do not have a valid exemption.
The government has published a list of “legitimate reasons” for not wearing a face mask in locations where they are otherwise required. This means the following categories of people do not need to wear a mask: children under the age of 11, those who cannot wear a mask due to medical reasons, those who are avoiding harm or trying to escape a risk of harm, and individuals who need to take medication and where it is reasonably necessary to eat or drink.
The government has stopped short of making it a requirement that employees wear face coverings in workplaces due to the varied work environments in different industries. Face coverings are not required for shop staff, but they do need to follow employer guidance as described in “What are the health and safety requirements for employees?” below.
The UK government confirmed at the end of April 2020 that “click and collect” services could continue to operate during the pandemic as long as customers did not enter stores. A number of nonessential retailers that have reopened and offer “click and collect” have reinstated the service.
The UK government has not issued prescriptive health and safety requirements to UK employers but rather directed employers to take the following five practical steps to work safely:
From July 1, 2020, employers have been able to bring furloughed employees back to work on a part-time basis, i.e., employees can return for any amount or time and any work pattern, while being on furlough leave for the hours not worked. This option is only available to employees who were furloughed for at least three weeks before June 30, 2020.
Employers can bring furloughed employees back at any time but they should give employees reasonable notice where possible. Employers are advised to discuss and consider any issues the employee may have such as childcare issues or healthcare concerns. Retailers must not discriminate when choosing who to bring back from furlough leave and the decision should be based on business needs. Extra caution should be taken when bringing vulnerable employees back to work.
The UK government has made available a number of stimulus funding measures, in which UK retailers have been able to participate. These include the following:
COVID-19 Corporate Financing Facility (CCFF)
Coronavirus Business Interruption Loan Scheme (CBILS)
Coronavirus Large Business Interruption Loan Scheme (CLBILS)
Local Authority Grants
Job Retention Scheme
Business Rates Relief
Total consumer expenditure in the retail sector remains depressed. Despite the increase in online spending and the increase in retail sales in June 2020, the UK retail sector is still depressed—fashion sales and High Street retailers are underperforming.
From August 2020 there is a tapered reduction in the support the UK government will be offering UK employers participating in the furlough scheme, and there is a corresponding increase in the financial contributions required of each UK employer.
The end of the furlough scheme has not yet been announced but is expected toward the end of the year, and this is forcing UK retailers to consider the size of their workforces. Certain UK retailers have made redundancies already, and it is reported that other UK retailers have been forced to consider redundancies and unpaid layoffs.
The COVID-19 pandemic caused a huge disruption in the world’s supply chain. Factory closures in Asia and Europe during the early part of 2020 were felt by companies across the world during spring and early summer, and prompted stock availability issues for UK retailers. These issues are likely to continue to some degree given the increased restrictions in place in factories across Europe and Asia, meaning that such factories are not able to work at full capacity. A second wave and localized lockdowns in key manufacturing regions would mean further factory closures and disruption to global supply chains.
Availability of Credit
It is not expected that the UK government will announce any further stimulus measures at this time. As the lockdown measures continue to ease and societies and economies begin to reopen after months of closure, the markets are watching lenders’ credit activities and risk appetites with keen interest.
A number of experts warn of the risk of potential second waves of COVID-19. These may be localized or affect much larger areas. Both localized and more widespread lockdowns caused by second waves of COVID-19 are a risk to the UK retail sector, as they are to many global industry sectors.
Trainee solicitor Sol Gelsomino contributed to this article.
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