Retail experience will never be the same

As the UK’s economy starts to come out of the initial lockdown period, questions need to be asked around how the retail sector will try and reopen. Safety will understandably be the main priority, but businesses will be anxious to try and turn the excess stock they have built up into cash as soon as possible.

Cash will undoubtedly be king as the sector looks to recover – retailers will need to cut costs to give themselves a suitable buffer and the freedom to negotiate the coming months. This will start with businesses engaging with their creditors and stakeholders to agree what can be paid for, from rent to tax, and understanding how many stores can realistically re-open. 

It is likely that we see retailers taking a commercial view on individual stores, slimming down numbers and focusing on restructuring. However, retailers need to recognise that shutting stores will not get them out of their leases, but in some cases, it is less of a drag to have an empty store than one that doesn’t work when open.

In order to make shops work, retailers will need to innovate the offering they provide. It would be either a brave or naive business owner to try and return exactly as they did before. The shopping experience will undoubtedly be different, with social distancing set to alter the layout of shops and the interactions between staff and customer, plus technology being harnessed to manage the experience. From a financial perspective, retailers are also likely to be faced with a customer base who, whilst looking forward to returning to normality, will have confidence at an all-time low and potentially a distinct lack of disposable income, so demonstrating value for money will also be crucial to securing business.

Firstly, retailers will have to rationalise the volume and scale of the product mix that they now stock in the stores they open. There will likely be a significant trimming of the ranges we see in shops, with companies focusing exclusively on products that are particularly good sellers supplemented by wider ranges available online. We may also see an increase in the number of retailers creating online-only items – things that may have been impulse buys in regular stores, but cannot be accommodated in the current environment. We have already seen New Look create ranges specifically for ecommerce platforms, creating greater brand awareness and encouraging people to come in-store.

Online experiences and apps will continue to see increased investment and could potentially direct store traffic. Online has been making up an increasing portion of purchases, and this experience has been embraced by consumers during lockdown, but it has no longer been able to make up for reduced store spend nor, in the period, has it replaced the volume that was generated in-store. Nevertheless, retailers will continue to integrate their routes to market to diversify their revenue streams and maximise outputs.

It is also important to ensure that the routes to market are simplified as much as possible. Alongside the traditional retail store and ecommerce platform, we expect to see a greater number of businesses operating click and collect services, in order to simplify purchasing and manage footfall whilst enticing customers back to stores. In order to ensure this complies with social distancing regulations, retailers may need to look to operate distinct queueing systems for click and collect and in-store shopping, while others may look toward alternative approaches such as the Amazon-style locker systems and the like to ensure safety.

Despite the ingenuity and all of their efforts, there is no doubt that there will be failures. With the likes of Oasis, Warehouse, Monsoon, Debenhams and Victoria’s Secret having already entered administration, there will undoubtedly be more. Administration is a restructuring process and for those who do not enter administration, there will be a number who will need to go through alternative processes. Whether those be via the new proposed restructuring plans or CVA’s or even by exiting administration via a CVA, their restructuring is inevitable.

There will be significant job losses. The volume will depend on the approach to restructuring of the individual retailer – many will not need the same number of staff in store and will need to adapt with customer experience being less of a focus in the initial new retail environment. Underperforming stores supported by those that perform will need to be weeded out and either utilisation of the space made to work or the store closed as efficiently as possible. 
Likewise, it can be expected that central and head office costs will need to be considered and aligned to a new financial reality. 

However, out of adversity comes opportunity. With many companies struggling for survival, others will and are seeing the opportunity to make strategic acquisitions and bolster their brand and product ranges. Fast fashion giant Boohoo has already looked to raise funds for this purpose, as well as buying the remainder of the stock in Pretty Little Thing. For those capable of doing so there will be opportunities to add to their brand stables and offerings, as well as to cherry pick the assets of failed competitors. 

Expansion of brands may produce economies of scale, partnerships and alignment and integration of complimentary offerings. We have already seen this with the likes of Habitat and Sainsbury’s, and while this partnership is yet to prove fruitful, there will be opportunities there for retailers that can find strategic fits. In the short term, we may see a return of smaller offerings reminiscent of department stores, with multiple synergistic brands available under one roof or via their online platforms. 

Ultimately, it is still too early to tell what approach will work in the long term or who is doing things well in the short term. It’s impossible to see who has adapted well when we have not seen the full re-opening of non-essential retail. While the government seems to be suggesting that June and July is when retailers will begin reopening their doors, the real impact of Covid-19 will only be clear once the current measures are unraveled. We may have to wait until 2021 until we next have a proper retail season, and until then retail will be walking a tightrope.

Retailers need to focus their attentions first on building a strong model that works for the future and not the past, ensuring their business is financially resilient and has sufficient cash reserves. They will need to negotiate hard with suppliers, whilst being mindful of the pressures they themselves will be under, and other creditors, as well as making some hard decisions on where best to apply their resources to maximum effect. They will also need to determine how best to innovate their offering to maximise their share of what will be a reduced consumer spend and survive, then thrive as they more forward. 

In the medium-term, restructuring today will be fundamental to addresses the challenges of the new normal and without this short term pain the business may not survive.

ENDS

Notes to Editors
Quantuma LLP is a leading business advisory firm which works with businesses at key milestones, delivering partner led solutions to help clients take advantage of opportunities and overcome a range of operational and financial challenges, enabling them to achieve their business objectives and ambitions. The business has 18 offices, including 15 in the UK, two international offices in Cyprus (Nicosia and Paphos) and one in Mauritius