After three months of hibernation, non-essential shops in England will finally be able to re-open on Monday. But it is clear Covid-19 will have a lasting impact on retail well beyond the end of lockdown.
There’s socially distanced shopping, for starters. The new retail rules during this pandemic may take a bit of getting used to. It’s one thing queueing for groceries, but we’re going to have to be prepared to queue to get into all the other shops, too.
We’re being encouraged to shop alone and to avoid touching things, where possible. You may have to forget trying clothes on as the guidance says fitting rooms should be closed wherever possible.
Coronavirus is going to suck some of the fun out of one of our most popular social activities and not all of us will fancy waiting in line when we can buy what we want online.
Duncan Brewer, head of the UK retail and consumer team at consultants Oliver Wyman, says people may also be more careful with their money. “Consumers have changed their spending habits, and will be increasingly used to going without much of their discretionary shopping.
“With the inevitable recession coming, it’s likely that many will continue to be careful with spending, even if they are comfortable shopping in the first place.”
There’s clearly a bit of pent-up demand, given the spectacular queues outside Ikea stores when they recently re-opened. But even if queueing becomes part of everyday life for now, it doesn’t mean bumper profits for retailers. Social distancing makes it hard for many firms to trade profitably.
Fewer shoppers means fewer transactions which may not cover all the costs of running stores, especially when government support measures start to ebb away.
“When we do start opening up, it certainly won’t be profitable, but we’ve got to start somewhere,” the retail entrepreneur and businessmen Theo Paphitis told me recently as he prepared to reopen his Robert Dyas, Boux Lingerie and Ryman stores.
He believes coronavirus has speeded up our changing shopping habits. Online sales have been rising steadily over the last decade but they’ve rocketed during the pandemic.
According to a survey by Visa, a third of Britons bought items online for the first time during lockdown. And that is likely to be a permanent shift – just look at food shopping. According to the most recent monthly figures from Kantar, nearly one in five households ordered groceries online – 1.6 million more than this time last year.
Non-food retailers have also seen a huge spike in online sales. KPMG estimates online retailing could reach 50% of the total goods we buy by 2025, five years earlier than previously anticipated.
“The necessity for many retailers to change business models, review their cost base including the amount of physical space they require, has been turbo-charged,” says Paul Martin, head of retail at KPMG.
With more done online, retailers need fewer shops. This was so long before coronavirus came along, yet the economics of store-based retailing look even more tricky now.
Not all shops will open immediately. It will be a gradual re-opening for some big chains. And some shops will never re-open, although as yet it’s difficult to say how many. Debenhams – in administration for the second time – has already said 17 of its stores will remain permanently closed.
Others have already failed to make it through lockdown – Cath Kidston, Oasis and Warehouse – and there will be more to come.
“There will continue to be business failures – but there is also opportunity for the better capitalised and more agile retailers,” says Lisa Hooker, PWC’s head of retail and consumer markets.
Retailers have been able to furlough workers and save huge sums with a year-long business rates holiday, but many costs have continued leaving them with an almighty cash squeeze. Some won’t be able to pay their rent for months to come.
Also, given the problems and debt burdens that many big businesses have, access to the government’s bailout loan schemes is proving challenging given the strict credit worthiness tests from lenders. More debt is the last thing some retailers need as any loans will later have to be paid off alongside deferred costs such as VAT.
For weaker businesses, coronavirus has brought all their problems to a head.
Watch out for Darwinism in retail over the next 18 months, says Paul Martin. “Those with an appealing customer proposition and valid business models, that are really fit for purpose with strong balance sheets will survive. Those that have neither will fall by the wayside”
If more shops shut, who and what will fill the gaps?
“There are so many implications for town centres,” says Ojay McDonald, CEO of the Association of Town and Centre Management.
“Many businesses in some city locations may be unviable as organisations who use large office spaces may be more supportive of home working, which will mean a big decrease in footfall and spend in these areas.”
But equally, there could be a boost to towns and villages, if more people are working from home.
“Covid-19 has shone a light on the need for many big chains to accelerate store closures but the lockdown has also led us to want to shop locally – so some High Streets will flourish,” believes Lisa Hooker.
Duncan Brewer also thinks there will be opportunities for new businesses: “Up to 25% of retail sites could be vacant. This large amount of retail space available will allow new entrants to launch new businesses without all the historic barriers to entry,”
Coronavirus could help reinvent our High Streets and town centres. But over the next 12-18 months there will plenty of turmoil, too.