Nine-in-ten UK retailers face cash-flow difficulties

Falling consumer spending power and social distancing measures have led to a huge number of British retailers having to close business completely, as a result of the Covid-19 lockdown. According to the latest figures from the Confederation of British Industry, two-fifths of retailers have shut up shop, and 96% now report cash-flow difficulties.

The UK’s retail segment has been in an almost perpetual decline in recent years. With falling consumer spending power thanks to stagnant wages and higher import costs and a lower value of the pound relating to Brexit, the sector was already suffering sustained solvency issues before 2020 – and the situation was due to get worse. According to a Deloitte study earlier in the year, while the number of administrations in the sector remained steady at 124 through 2019, much worse could soon be on the cards, as the number of alternative insolvency procedures retailers are able to deploy to avoid collapse has declined dramatically.

That was before the Covid-19 pandemic led to a nationwide lock-down which reduced consumer footfall to all but zero following March, in all non-essential stores. Now, the Confederation of British Industry (CBI) has revealed that two-thirds of retail businesses have been adversely affected by the pandemic and almost all said they were experiencing cash-flow problems, painting a picture of an industry on the brink of collapse.

The employers organisation’s distributive trades survey polled 70 retailers between the end of March and mid-April, and found that 71% of respondents said activity was down on a year earlier, compared with 16% reporting an increase. Amid this, 39% of retailers reported a total shutdown of UK activity due to the outbreak.

Rain Newton-Smith, Chief Economist at the CBI, commented, “It’s no surprise that the lockdown is hitting retailers hard. Two-fifths have shut up shop completely for now. And sales of groceries and other essentials also fell, suggesting households may have been dipping into stockpiles built up prior to the lockdown or tightening their belts more generally as incomes take a hit.”

While only 8% of retail leaders reported permanent staff lay-offs, depending on the next few months this could spike exponentially. At present, 96% of retailers report cash-flow difficulties, with 40% facing difficulties meeting tax liabilities and 31% facing constraints on the availability of external finance. If the wider public are unable to resume regular consumption soon, then, the sector could be about to see an alarming number of job-losses.

According to Newton-Smith, however, the post-coronavirus turbulence in retail might be mitigated by the Government’s jobs retention measures. Furloughing theoretically could mean that a significant portion of those who might have lost their income amid lock-down will still be able to function as consumers, once social distancing is relaxed – throwing retailers a potential lifeline. For three months from the start of March, companies have been told by the Government they can now furlough employees instead of firing them – with the Government paying up to 80% of people’s wages, up to a maximum of £2,500 per month.

Newton-Smith explained, “Although the livelihoods of hundreds of thousands of employees in retail remain at risk, there are encouraging signs that the Government’s job retention scheme is providing genuine relief, with many opting for temporary rather than permanent lay-offs.”

Two-thirds of British businesses have already used the Government's scheme since it was announced, and one-in-three companies have put at least 75% of their workforce on furlough, according to a survey published by the British Chamber of Commerce. If this pattern is repeated across the economy, between seven million and ten million people (at least one-third of private sector employees) will be furloughed, according to analysis from think-tank The Resolution Foundation.