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Post-lockdown: keeping business afloat

Lawyers predict that 1 in 10 SMEs is set to collapse post-lockdown. This harsh reality means burying heads in sand is not an option and steps – some difficult – must be taken sooner rather than later to protect against the looming slump. Recent news that household names such as Boots, John Lewis and H&M are announcing drastic store closures, in order to protect themselves in the long-term, has proven that no matter their size, no business is immune to the effects of coronavirus.

Every sector has been feeling the effects of an increasingly sluggish economy for some time now – none more than the retail industry. According to Springboard data, between 31 May and 4 July footfall declined by 65.1% on the high street. It fell by 62.3% in shopping centres and 32.2% in retail parks.

While a poisoned chalice of high commercial rental costs, changes in buying habits and plateauing wages across the country had, up until lockdown, been responsible for a notable rise in company insolvencies, the crisis has set the UK firmly on track to enter the deepest recession in centuries.

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Despite John Lewis’ claims that some of its stores were in trouble before the virus struck, and Boots’ existing plans for a shake-up, these financial woes have undoubtedly been accelerated by the global lockdown. With high street retailers shutting up shop and lack of money in consumers’ pockets, businesses are actively having to fight to attract the remaining spending power that is out there.

The pandemic has emphasised gaps in business plans and exposed flaws in processes. For example, highlighting where companies have not been prepared for a sudden uptake in online sales. Crucially, however, this unprecedented time has also given businesses breathing space to come to terms with their failings and set out their map for recovery. This is where having a realistic view of the business is essential, including the slow process ahead.

H&M, Boots, and John Lewis all have one thing in common in the way they are handling their restructuring plans: store closures. Before now, profits from the strongest-performing stores in places like retail parks, airports and train stations may have be able to carry those that were struggling. However, where footfall has disappeared overnight, retailers need to be as frugal as possible and, in order to have an immediate impact, hard decisions need to be made as quickly as possible in relation to non-performing stores.

The reality is that with the rapid changes in customer behaviour caused by the pandemic, retailers should be accelerating their digital development, optimising their store portfolios, and further integrating their channels. Streamlining in this way may involve the closure of non-performing stores, cutting bonuses, and re-negotiating rental agreements with landlords.

For retailers, it is more important than ever to ensure websites are equipped for online sales and, consequently, workforces must be adapted accordingly. This may mean hiring more delivery drivers and warehouse staff, or re-skilling those whose jobs may be at risk from store closures.

Back in May – the height of lockdown – Debenhams announced it was closing its store outside Grand Central station in Birmingham, only to backtrack after securing a new deal with the landlord. This should give other stores a glimmer of hope in terms of their bargaining position. Particularly for larger stores in big cities, there is need in the current climate to ensure their presence continues to grace the high street. This is an opportunity for retailers to begin negotiating with landlords and experts can help to secure these opportunities.

It is important for retailers, big and small, to try and see through the fog, where possible. No matter whether it’s a global chain experiencing financial hardship, or the director of a boutique outlet, spotting the warning signs early and taking action is crucial. For directors, the best chance to turn the fortune of the business around is when the right support is in place.

Gareth Hegarty is an insolvency specialist at law firm, Shakespeare Martineau

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