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November 4, 2020

UK lockdown 2.0 to cost non-essential retail $8.8bn

A second planned UK lockdown which begins tomorrow (5 November) could cost non-essential retail GBP6.8bn (US$8.8bn) according to new research.

By Hannah Abdulla

A second planned UK lockdown which begins tomorrow (5 November) could cost non-essential retail GBP6.8bn (US$8.8bn) according to new research.

On Saturday (31 October), Prime Minister Boris Johnson announced measures that will see the UK plunged into lockdown once again for one month, with non-essential retail closures part of the strategy to curb the spread of the coronavirus.

Research from Retail Economics shows the non-essential sector could see colossal sales falls over the four week period.

Conversely, online sales are expected to jump by GBP2.9bn compared with the previous year. 

The swing in sales will not land evenly across the sector and is likely to benefit established pure online retailers and those with strong multichannel propositions. Independent high street retailers will be hardest hit. 

What’s more, cancelled parties and limited social interaction will undermine demand for new outfits during the crucial golden quarter, decimating sales across the apparel sector. 

Retail Economics’ senior consultant Nicholas Found comments: “With Christmas around the corner, this couldn’t have come at a worse time for retailers. Lockdown measures have ensured it will be a digital Christmas and Black Friday will become even more important this year are shoppers bring forward festive purchases during this extended event. But capacity will be stretched to the limit as a new wave of online shoppers purchase gifts online that they previously would only have ever considered buying in-store. 

“While some consumers will choose to hold off spending this month, pent up demand in December could leave shoppers grappling queues both on- and offline given social distancing in warehouses, delivery capacity and restrictions on shopper numbers in-store.”

Earlier this weeks, industry watchers weighed in on what the lockdown could mean for non-essential retailers as Primark became one of the first to warn of a GBP375m (US$437m) sales hit as a result of the forced closure. 

Richard Lim, CEO at research consultancy Retail Economics:   “These new lockdown measures could not have come at a worse time for the retail industry. In particular, small retailers remain in survival mode and profits made during the festive period will determine whether they continue to trade into the New Year. It will be a devastating blow to the industry. 

“There’s no doubt that this will be a digital Christmas. The shift towards online will be of epic proportions but there are serious doubts over whether the industry has the capacity to cope. There will be a strain on websites, warehouses and, crucially, delivery networks. Put simply, the industry just isn’t set up for such a colossal switch to online and many retailers will not be able to cope, which will ultimately leave consumers frustrated.

“We’ll see a huge polarisation in sales performance with retailers who have invested in their online operations significantly over the last few years benefitting from the shift.”

Helen Dickinson, CEO of the British Retail Consortium: “Retail faces a nightmare before Christmas as the Government proposes to close thousands of retail premises under this new national lockdown, denying customers access to many of their favourite shops and brands. It will cause untold damage to the high street in the run up to Christmas, cost countless jobs, and permanently set back the recovery of the wider economy, with only a minimal effect on the transmission of the virus.

“A recent Sage paper reported that closing ‘non-essential’ retail would have minimal impact on the transmission of Covid. This is thanks to the hundreds of millions of pounds retailers have spent making their stores Covid-secure and safe for customers and colleagues.

“The announced closure will have a significant economic impact on the viability of thousands of shops and hundreds of thousands of jobs across the country. The previous lockdown cost ‘non-essential’ shops GBP1.6bn a week in lost sales; now that we are entering the all-important Christmas shopping period, these losses are certain to be much bigger.

“We have no doubt that retailers will comply with the rules and play their part to ensure the British public can remain safe and have access to the goods they need. Nonetheless, Government must also play its part, providing support to businesses that will be forced to close, otherwise the consequences for local retail will be dire.”

Clive Black, analyst at ShoreCapital:Pure-play is the silver lining to the retail cloud with an online Black Friday to come. For the pure-play online retailers, they may again experience elevated sales through lockdown II, so benefiting the likes Asos and Boohoo.

“More broadly, we shall watch with interest to see how a purely online Black Friday pans out, noting that some offline retailers may have procured stock for this event that may be difficult to sell through, which could be a potential working capital challenge. Accordingly, Amazon will most probably be licking its lips at this time as the British government provides the group with another upward lever to demand. As such, structural change to the British retail industry, which was also subject to acceleration in lockdown I, has been given more fuel still.

“For all of those participants in the British food and retail systems, the immediate focus for Boards will again be on financial liquidity and solvency. Thankfully, much good work has been undertaken by the listed players through CY2020 in this respect. Whilst so, models are now being reassessed again and, at the broadest level, one cannot say with much confidence that there will not be more store closures, redundancies and business failures still in the discretionary and hospitality arenas in particular; for the likes of Debenhams, which was already in the retail ICU, lockdown II could now be terminal.”

Elliott Jacobs, EMEA commerce consulting director at LiveArea: “As non-essential retailers close their doors once again from Thursday, it will be a test of whether the digital investments made over the last year will stand up to the challenge.

“Retailers that have failed to invest in their online channels have struggled. The pandemic has proven that while digital businesses are more resilient and agile, it is the back-end that is fundamental to success. Amazon has shown rock solid back-end capabilities and a well-oiled supply chain are pivotal in fulfilling surges of online orders and ultimately providing the best possible service to customers.

“This Christmas is a retail turning point – from 2020 onwards, online channels will be the primary means of shopping. Retailers that fail to react now may not see 2021.”

Stephanie Milner, VP, CX Mangagement at call centre operator Teleperformance:   “Traders warn GBP.6bn was lost each week during the spring lockdown, which will be amplified considering the months. Millions of pounds have been pumped into making retail stores Covid-compliant – money that would have been better spent on a long-term digital strategy focused on customer care.

“We are witnessing digital adoption at unprecedented rates. The pandemic has driven a shift in who is using e-commerce, how they are using it, and why. It has transformed those who once refused to download apps into advocates of online grocery. Boomers previously considered to be slow adopters of technology are now ordering gifts for grandchildren and accessing pharmacy for prescriptions brought to their door. Whatever the reason for the consumer to go online, it is happening across brands, products and demographics.”

“Maintaining support, particularly during a pandemic, will prove critical for retailers this festive season. In the absence of face-to-face interactions, hearts and wallets will be won by making full use of all digital channels. This means comprehensively resolving queries at speed, whilst striving to add value to each individual consumer’s life through relevant, timely and tailored content. Keeping customer service channels up and running with lockdowns in place can be challenging, but consumers are far more likely to need care, particularly with dependence on e-commerce increasing. While the sector is heavily relying on digital channels to keep afloat in the current environment, the best brands will blend high-tech with high-touch – creating emotional and personalised experiences at scale.”

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