Much of non-essential retail’s 2020 profit had already been wiped out. The latest lockdown will put paid to the rest, and more. Not so long ago the Chancellor’s upgrade of post-furlough support seemed to have delayed the inevitable and put money in consumer’s pockets in one act. That’s now history. A few weeks is a long time in retail these days.
While full blown furlough is back, the lockdown for at very least the month of November will certainly kill quite a number of retail businesses. November typically accounts for between 9% and 9.5% of annual non-essential retail sales – around £20 billion. Even if it doesn’t spill over into December an already overstocked industry will be massively more overstocked.
Clearly, the industry still has online and this will help to keep tills ringing. But this is not the massive advantage some might believe. Online margins are thin at best. While the supermarkets have been brilliant at massively expanding capacity during lockdown, non-foods have found it much more challenging. And the pressing need to both deal with highly expanded online demand, and the need to fulfil orders for Christmas will be a huge challenge.
In terms of trading economics, the key issue is cash. Cash is the symptom but the root cause is inventory. Not simply having too much but lacking the tools to forecast demand and allocate inventory not just by channel but by store.
I said earlier that this lockdown will kill some retailers. A common thread throughout this crazy year has been how reality has become disconnected, by both government support and by deluded stakeholders who continue to avoid facing facts. Even before this second national lockdown, some dead retailers remain trading as high street zombies. Their number will undoubtedly grow.
Looking to next year, most retailers will have balance sheets bloated with unsold stock, generally at fanciful values. Meanwhile, those Christmas trading statements will be even more fictitious than ever.
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