Half of retailers face administration by the end of the summer due to coronavirus lockdown

Half of retailers face administration by the end of the summer due to coronavirus lockdown 1

HALF of major retailers in the UK face falling into administration by the end of the summer as they struggle to manage their cash flow during the coronavirus lockdown, a new report has suggested.

A study of 34 major non-food retailers in Britain found that five already had negative cash flow before the pandemic even began, relying on credit to fund any investment.

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 Retailers could be in trouble if the lockdown continues, a new report has found

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Retailers could be in trouble if the lockdown continues, a new report has foundCredit: Getty Images – Getty

The news comes as Britain was warned of pay cuts and up to two million job losses caused by the corona­virus lockdown.

Treasury forecasters fear the economy faces its worst slump on record.

Unemployment could rocket to 3.4 million and the deficit may spiral to £218 billion this year.

The figures, produced by the Office for Budget Responsibility, predict the worst GDP slump in a single quarter since records began in 1908.

Separately, The International Monetary Fund warned the global economy will suffer its deepest plunge since the Great Depression of the 1930s.

Half of retailers face administration by the end of the summer due to coronavirus lockdown 2

 Shoppers walk past boarded up stores as the UK lockdown continues

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Shoppers walk past boarded up stores as the UK lockdown continuesCredit: Reuters

 The high street has been forced to shut as the coronavirus crisis takes hold

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The high street has been forced to shut as the coronavirus crisis takes holdCredit: Reuters

The high street has already begun to feel the pinch.

The report on retailers found that even if sales dropped 10 per cent during the lockdown period, more than two-thirds of retailers would fall into negative cashflow, according to the new report from global professional services firm Alvarez & Marsal and Retail Economics.

But it suggests that sales are set to drop as much as 70 per cent – putting every retailer sampled into dangerous territory.

The retailers studied included Next, Card Factory, Shoe Zone, Mulberry, John Lewis and Dunelm.

A number of retailers have already suffered in the last few weeks, including Debenhams, which officially entered administration for the second time in 12 months last week.

And it also emerged this week that Warehouse and Oasis are close to appointing accountancy firm Deloitte to handle an insolvency process.

The report suggested that even with Government help, more than half of the retailers will run out of cash within six months.

Retailers covered in the analysis

These are the retailers the study looked at to assess the state of the UK high street

  • AO.com
  • ASOS
  • B&M
  • Boohoo
  • Burberry
  • Card Factory
  • DFS
  • Dixons Carphone
  • Dunelm
  • Fraser Group
  • French Connection
  • Games Workshop
  • Halfords
  • Howdens
  • JD Sports
  • John Lewis
  • Kingfisher Group
  • Moss Bros Group
  • Mulberry
  • N Brown Group
  • Next
  • Pets At Home
  • Photo Me
  • Quiz
  • SCS
  • Shoe Zone
  • Stanley Gibbons Group
  • Studio Retail Group
  • Superdry
  • Ted Baker
  • Topps Tiles
  • Travis Perkins
  • United Carpets
  • Watches of Switzerland
  • WH Smiths

At the moment, retailers are being helped by Government measures including a business rates holiday and the furlough scheme, which pays some of employees’ wages.

They are also being protected from eviction and are being offered other help to manage any loans they may have.

If the lockdown only lasts three months, most large retailers will be able to weather the storm, the report suggests.

But if it lasts through the summer, demands on retailers’ cash will intensify and they will have to seek alternative funding in order to pay things like rent and labour costs.

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Richard Fleming, managing director and head of restructuring, Europe, at Alvarez & Marsal, said Government measures had so far spared many brands from immediate collapse.

“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,” he added.

Retailers which could disappear from the high street

These retailers have all revealed problems in the last few weeks

  • Debenhams entered administration earlier this month so it can continue trading but will close 39 stores
  • Oasis and Warehouse said this week that they are on the edge of administration
  • Shoe shop Office has been put up for sale 
  • Laura Ashley announced it was going into administration last month
  • Brighthouse fell into administration at the end of March
  • Cath Kidston has been put up for sale to save it from collapse, and administrators are also set to be appointed

The future also looks bleak for smaller businesses.

One in ten small firms plans to close or sell up, the Federation of Small Businesses has warned, while one in five aim to downsize.

The Alvarez & Marsal and Retail Economics report also said that the coronavirus crisis has resulted in more people buying things online which they would have previously bought in stores.

One third of consumers have switched to purchasing products online that they would have previously only purchased in shops, it said – something which it expects to continue even once the lockdown lifts.

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Some retailers are working out how to operate during the lockdown.

Fashion retailer Next reopened its website this week, two weeks after it shut down over coronavirus fears.

But others are struggling.

At the end of last month, Brighthouse and Carluccio’s went into administration, putting 4,500 jobs at risk.

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