U.K. Retailers Face Christmas Nightmare With Fresh Lockdown
(Bloomberg) -- U.K. retailers face a Christmas disaster after the government ordered non-essential stores across England to shut for four weeks just as the busiest shopping season of the year was getting under way.
Many retailers were already struggling to recover from the first lockdown last spring and laden with stock for Black Friday promotions and the holiday period. The new restrictions could prove fatal for some businesses, particularly if they’re extended beyond the initial four weeks -- as Cabinet Office Minister Michael Gove suggested Sunday might be necessary.
France, Germany and other European countries have also imposed new restrictions as Covid-19 surges anew across the region. Retailers in the U.K. are particularly vulnerable because of the country’s early and enthusiastic embrace of online shopping, which has contributed to the collapse of household names like BHS and the sale of others such as House of Fraser, with vacant shopfronts proliferating.
Associated British Foods Plc, owner of the Primark discount fashion chain, said the European restrictions will affect 57% of its selling space. The company expects to lose 375 million pounds ($484 million) worth of sales as a result, according to a statement Monday. Shares of AB Foods, which does not sell Primark clothing online, fell as much as 4% in early London trading.
U.K. Retail, Pub, Travel Stocks Drop on New National Lockdown
The new measures will have a “huge impact,” as 80% of the profits for non-food retailers are typically generated in November and December, said Mark Price, former deputy chairman of department-store operator John Lewis Partnership Plc.
The restrictions, set to begin Thursday, come as many retailers’ online capacity was already stretched, meaning they won’t necessarily be able to make up for lost in-store sales via e-commerce.
The new measures will continue to funnel business to digitally focused companies, though. Online grocer Ocado Group Plc on Monday lifted its profit target, citing strong sales trends during the pandemic. Its shares rose as much as 8.1%.
Simon Wolfson, chief executive officer of Next Plc, said last week in a financial update that a new lockdown was the biggest risk facing the industry. Just a two-week shutdown in November in England, Northern Ireland and Scotland would reduce the clothing retailer’s sales by about 57 million pounds ($74 million) depending on timing, he said. There’s “no evidence” of the virus being transmitted in stores, or studies suggesting that clothing and houseware retail presents a significant risk of infection, he said.
Next shares fell as much as 3.2%.
The New West End Company, a lobbying organization for more than 600 London retail and leisure businesses, warned that 2 billion pounds of sales could be lost as a result of the latest lockdown. That would be a severe blow for the city’s West End entertainment district, where current sales were already down about two-thirds from pre-pandemic levels.
“The month of November usually signals the start of the golden eight weeks leading up to Christmas, a period that sees West End businesses secure a third of their total annual sales,” said Jace Tyrrell, the group’s chief. “Yet, with forecast revenue significantly reduced combined with mounting costs, West End retailers face devastating decisions on the viability of their businesses without further government support and an increase in footfall.”
While the U.K. government has moved to extend its job support program until the end of November to cushion the blow, many retail experts warn of fresh employment losses and store closures. Helen Dickinson, CEO of the British Retail Consortium, said the move would cost “countless jobs and permanently set back the recovery of the wider economy.”
“The previous lockdown cost non-essential shops 1.6 billion pounds a week in lost sales; now we are entering the all-important Christmas shopping period, these losses are certain to be much bigger,” she said.
The country’s retail sector was already showing renewed stress before the lockdown was announced. Sales fell at the fastest pace since June last month, with demand at department stores and clothing outlets slumping, according to the Confederation of British Industry. Grocery sales flatlined for the first time since the previous lockdown and retailers cut orders with suppliers for an 18th month, even as they prepared for the traditionally busy end-of-year shopping period.
Retail executives were holding crisis talks this weekend to determine how to save their Christmas. Some will try to cancel orders to avoid a large overhang of stock they’d have to sell at a discount. Others are considering opening longer hours until Thursday in case some shoppers rush to stores before they close their doors.
Dixons Carphone Plc stores will still play a vital role as customers can use them to pick up online orders, CEO Alex Baldock said. “More customers shopping online are getting face-to-face advice from our store experts,” he said, “and we’ll ramp that up faster during lockdown.”
The biggest question facing retailers is whether the planned four-week lockdown will slow the virus enough so that stores can reopen before Christmas, said one non-executive director at a large retailer, who asked not to be identified discussing sensitive corporate matters.
Businesses will have no choice but to “hold on to that hope,” the director said. If the lockdown is extended, it will be “game over.”
©2020 Bloomberg L.P.