Retail might need some more therapy

With the news that further major High Street names are entering administration, CVR Global’s Ian Defty believes there could be more to follow as spring turns to summer.

Any commentary on the High Street and the impact of Coronavirus must be prefaced with the fact that the sector was facing extremely tough trading conditions prior to Covid-19.

A shift towards internet shopping and out-of-town retail combined with the pressure of high rents and high business rates has seen the High Street facing years of struggle. What we are seeing now is exacerbating that situation and it could change the retail landscape for ever. Can anyone really see a return to the previous normal when it comes to retail?

Big names such as Debenhams, Oasis and Warehouse have all been impacted initially with trading difficulties and now by Covid-19 so drastically that they have entered administration.

At any other time, one might expect a white knight to come riding to the rescue but with so much uncertainty, potential investors will be sitting tight. Hedge funds and finance houses are holding onto their cash and will only look to add to their portfolios when they have a little more certainty. That, of course, is no comfort to those creditors affected now and the thousands of staff nationwide.

Recent court rulings around who is responsible for the payment of staff in these businesses has further added to their woes and to the uncertainty surrounding the situation.

In the case of Carluccio’s, the judge ruled that staff could be furloughed whilst the company was in administration and, therefore, be paid by the Government rather than the administrator. In the case of Debenhams, the judge has ruled the opposite way and says the administrator is responsible for staff salaries subject to the relevant legislation which says that the administrator adopts the contracts of the employees after 14 days, which makes the process of administration unattractive to those businesses with many staff.

And, without wishing to be the bearer of bad news, you can only see the situation getting worse before it gets better. Many retailers will have just about made the March quarter rent payments but with virtually no income generated subsequently, cashflow is going to be extremely tight and, therefore, there could be further trouble stored up for the June quarter rent payments.

The Government’s support for business has been unprecedented and should be applauded but they perhaps assumed that big business would have enough in reserve to get through these difficult times and, therefore, it has focussed efforts of help on small and medium sized firms. That did not take into account the fragility of retail firms of all sizes.

Depending on how long the current situation continues, the Government may have to look at what it can do for larger firms before the end of June or risk further High Street casualties.