Britain’s high street giants could be wiped out in weeks if the coronavirus continues, consumer experts have warned today.
Experts have painted a bleak picture of the scenario facing the UK high street as major retailers including Oasis and Warehouse teeter on the brink of administration.
A study of 34 non-food retailers including Dunelm, JD Sports, John Lewis and Next has found that many may not survive the pandemic sweeping the nation.
Even after government support, more than half of major non-food UK retailers will run out of cash within six months, according to the report.
The study was conducted by professional services firm Alvarez & Marsal (A&M), in partnership with Retail Economics.
It found that five out of the 34 major non-food retailers analysed already had negative cash flow at the outbreak of the pandemic.
This comes as the UK’s fiscal watchdog warned that more than two million people could lose their jobs and the economy may fall off a cliff because of the lockdown.
Analysis of 34 major British retailers shows High Street stores are on the brink of closure
Modelling by A&M and Retail Economics shows that a 10 per cent reduction in sales would have resulted in over two-thirds of major U.K. retailers falling into negative cash flow.
But sales are forecasted to have dropped as much as 70 percent since the lockdown was introduced on March 23, tipping every retailer sampled into immediate negative cash flow.
A&M said: ‘Should the lockdown persist into the summer, working capital demands will intensify and large parts of the sector will be decimated as swathes of retailers seek additional funding in order to survive.’
Richard Fleming, Managing Director and Head of Restructuring Europe, A&M, said: ‘Government measures have spared the major retail brands from immediate collapse. You could characterise this three-month period as a payment holiday. But prudent retailers are still pivoting their focus towards what cashflow they have and can expect in future. This is the essential fact base upon which turnarounds can be built.
‘The next few weeks will be critical. Retailers need to ask themselves the tough questions and take steps to address underlying operational issues while they still have the chance.’
Erin Brookes, Managing Director and Head of Retail, added: ‘It has already become clear that the high street will take on a very different form once the pandemic is over.
‘Weaker players will, unfortunately, cease to exist, leaving behind a smaller but more resilient sector comprising operators that acted fast.
Yesterday, the Office for Budget Responsibility (OBR) said unemployment could hit 3.4 million – up from 1.3 million – leaving around one in 10 of the working population without a job, while the economy may shrink by 35% between April and June.
Chancellor Rishi Sunak told reporters that not every business or household could be protected, but that a ‘bounceback in growth’ is expected when the crisis eases.
It came as a survey from the British Chambers of Commerce suggested around one in three British businesses has furloughed between 75% and 100% of its workforce.
Fashion sellers Oasis and Warehouse were on the brink of administration on Monday night – putting 2,300 jobs at risk.
The British high street chains called in administrators yesterday as the lockdown threatened to claim its latest victims.
The two brands, which run 90 stores, are expected to appoint auditor Deloitte to run the process.
Workers are likely to be furloughed under the Government’s job retention scheme on 80 per cent of their pay during the administration until a buyer can be found.
The Oasis and Warehouse Group has been looking for a saviour for weeks but could not close a deal due to the pandemic.
It is owned by failed Icelandic bank Kaupthing.
The lockdown has already claimed Laura Ashley, electrical retailer Brighthouse, and restaurant chains Carluccio’s and Chiquito.
Many firms were already reeling after last year, the worst for the high street in a quarter of a century. Deloitte declined to comment.
Meanwhile, there are fears are building that gyms, pubs and restaurants may never reopen as landlords threaten them with eviction for unpaid rent during the coronavirus lockdown.
Nearly 3,000 gyms and leisure centres now face the threat of closure, while top chef Yotam Ottolenghi has warned that restaurants are suffering the same issue.
Pubs and non-essential shops have also faced trouble paying rent, amid fears they will not be able to reopen after the pandemic because they will have no cash left.
Owners of businesses from photography studios in Southport to massage centres in Surrey have got in touch with MailOnline to tell of their concerns over rent.
Up to 100,000 jobs could be at risk at gyms with trade body UKActive calling for urgent action to protect places of exercise which remain shut due to the pandemic.
Fresh legislation to protect commercial tenants was brought in last month, but it does not stop landlords forcing them to pay rent withheld due to the lockdown.
Mr Ottolenghi told BBC Radio 4’s programme: ‘The biggest worry that we have is rent. When corona started and we were asked to close our doors, which is totally understandable because of safety, nobody really addressed the issue of the rents
‘Many, many have not been paying rents. Others have got into arrangements with their landlords, but this has not been solved.
‘Some landlords have been threatening to prosecute and other legal actions against the tenants at restaurants in such a time because they are not paying their rents, and landlords, many of them, rely on the rent to pay their own debts.’
He is calling on the Government to give restaurants a ‘litigation ceasefire’ with a debt enforcement moratorium for six months in which credit action is banned.
Mr Ottolenghi said this would mean business owners cannot be litigated against to pay rent – and the same for landlords who can’t pay their mortgages.
He has also suggested a ‘national timeout’ of nine months rent free from April to December in which landlords would also be compensated.
As for the gym industry, UKActive chief executive Huw Edwards has told how taking legal action such as issuing statutory demands and winding up orders was ‘entirely disproportionate’.
Mr Edwards said yesterday: ‘A worrying number have decided to pursue statutory demand notices or winding up orders.
‘We need the Government to act now to direct within the Act that landlords cannot do this. With 2,800 gyms at risk of permanent closure, and 100,000 jobs at stake, time is of the essence.’
Section 82 of the Coronavirus Act 2020 introduced on March 25 intends to help protect commercial tenants by banning the forfeiture of commercial leases until June 30 – or longer if the Government deems necessary – for non-payment of rent.
But it does not stop landlords taking action such as rent arrears recovery, making a debt claim, issuing a statutory demand, or starting winding-up proceedings.
UKActive therefore wants the Government to amend the Act so landlords cannot purse legal action, and introduce financial support for them for a rent holiday.
Just 4,200 companies have been able to get the Government’s emergency bailout loans – out of 300,000 applicants.
The worrying figures emerged despite the scheme already being overhauled once earlier this month when firms complained they could not access the cash. Business owners have warned the failure means they could go bust.
Around £800million has been handed out under the package – a figure which pales in comparison with £146billion provided to 725,000 firms in the US.
Lord Mervyn King, former governor of the Bank of England, said: ‘Something has gone wrong. The economy will only recover if we can keep businesses running and able to pick up the reins when this crisis is over.’
Banks have been overwhelmed by demand since the launch of the Coronavirus Business Interruption Loans Scheme last month.
They have been accused of refusing loans due to complex eligibility criteria. More than two-thirds of the loans, 2,500 in total, have been approved by state-owned bank RBS.
Business Secretary Alok Sharma said: ‘We have set this up at pace and everyone is working around the clock.’
‘Landlords are not going to be the only people who post Covid-19 will have been able to get through this unscathed.
