Second Covid wave will leave retailers and suppliers with nowhere to hide, says ParcelHero
As Brits brace themselves for a second wave of the coronavirus, the leading home delivery specialist ParcelHero says retailers and manufacturers are already facing a perfect storm.
Footfall in retail parks, shopping centres and high streets was 70% down in the second quarter of 2020 compared to the same time last year – and the government’s much vaunted return to work campaign seems to have done little to stem the loss.
ParcelHero’s head of consumer research, David Jinks, MILT, is presenting a webinar for credit, collections and enforcement industry professionals on Tuesday, CCRi Virtual. He says that a second wave could sweep away many surviving retailers now that a number of the government’s coronavirus schemes are ending, while the growing number of pre-pack administrations keep store brands going but appear to do little to protect suppliers and customers:
‘If Covid does return in force, it’s hard to see how some of Britain’s favourite retailers and their suppliers can remain afloat. Household names such as Laura Ashley, Debenhams and Cath Kidston have already collapsed into administration this year and they won’t be the last.
‘The government’s decision to ban social gatherings of more than six people is understandable but it underlines the renewed threat Britain now faces. 49 major retailers have called in the receivers so far this year, with 3,140 stores affected and 63,320 jobs gone or endangered. In other words, by the end of June 2020 more bricks-and-mortar retailers had gone into administration than in the whole of 2019. What’s more, 2019 was the worst year for 25 years.
‘Look under the surface and things are even bleaker. It’s not just the retailers that are drowning but all the manufacturers that supply them. The original owners of many companies are buying them out of administration and setting each one up as a ‘new co’. This is what happened to Go Outdoors, which is still trading, despite going into administration.
‘Going into administration protects companies from their creditors and the new company can legally cancel existing property leases. Go Outdoors was owned by JD Sports, who pushed it into administration towards the end of June. They immediately bought it back, in what’s known as a pre-pack administration, for £56.5m. In July, the administrators estimated that unsecured creditors (trade creditors, suppliers and customers) would receive only 1p in the £1. It’s entirely legal and often the only way to secure jobs. But suppliers are often left holding the short straw.
‘Clintons, the struggling greeting cards business, attempted to use a compulsory voluntary agreement (CVA) last year to cut rents and close stores but could not get approval from its landlords. It resorted to a pre-pack administration early in December 2019 that hopefully saved the business but wiped out many suppliers of goods and services to the chain, according to the Centre for Retail Research.
‘New Look is going through the same process now, having failed to find a buyer. What will happen to all the companies supplying the famous fashion brand if it too calls in administrators? Sometimes landlords and creditors are caught between the devil and the deep blue sea in deciding whether to agree to a CVA or push for liquidation.
‘The high street is under huge threat. Fashion sales have collapsed by over a quarter this year and department stores are departing the high street quicker than you can say “Beales”. With so many CVAs and administrations happening, landlords are feeling the bite as well. Even Intu, which owns giant centres such as Lakeside, Manchester’s Trafford Centre and Gateshead Metrocentre, has gone into administration.
‘At least the government has given high street shops a holiday from business rates this year; that’s only fair, considering they are the highest in Europe. But multichannel stores will still lose out in the long run as, instead, the chancellor is proposing a 2% online tax on all UK web sales to make up for some of those lost rates. That’s in addition to a proposed mandatory delivery charge, rather like the plastic bag charge, that is designed to make us all aware of the environmental impact of deliveries. Then there’s the already introduced ‘Amazon Tax’ – a 2% UK sales tax on several e-commerce giants.
‘Online sales were the last safe harbour against the coronavirus second wave. They, too, could be washed away under a deluge of new taxes. As coronavirus threatens to engulf Britain once again, retailers and their suppliers may not surface a second time.
