Bricks and mortar retailers have struggled to compete with internet retailers and rising input costs for a number of years now resulting in reduced profitability and dwindling cash resources.
The lockdown compounds this problem to such an extent that many shops will not reopen; chains coming out of administration or company voluntary arrangements (CVA) with a much reduced estate and small businesses failing as they run out of cash.
What is certain is that there will be fewer shops. A correction that is long overdue.
Traditional retailers have been told time and time again, often by consultants with little or no experience of retail, that goods and merchandise must come with an experience an incentive thereby distinguishing itself from internet shopping.
There must be a reason to schlep to the shops other than the fulfilment of want or need. I for one have a problem with this wisdom given I sell recorded music which, by definition, is its own experience, not to rent but to own.
How does one embellish the experience of buying Marvin Gaye’s What’s Going On or The Beatles’ Sgt. Pepper’s Lonely Hearts Club Band?
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Oddly enough the events and experience retail and service providers are likely to be in lockdown longer than traditional retailers due to social distancing guidelines.
The quality of the event or experience counts for nothing if you have no cash left to provide such services. Likewise pubs, cafes and restaurants.
I suspect a significant number of these businesses will fail to reopen as they run out of cash. Businesses fail not necessarily due to lack of profits but lack of cash-flow, enough to meet their liabilities.
Government assistance will be insufficient for many such businesses. Businesses have had no need or incentive to hold large cash reserves since interest rates discourage savings.
You’d be better off using any cash surplus to invest or expand; I know of one hospitality retailer who has opened two other businesses on Gloucester Road in the last six months in anticipation that the investments/expansion will increase profits and strengthen his business.
Covid-19 has put paid to that hope. This sector trades in perishable goods, paid for and never sold! Should they reopen they have to restock. Will the suppliers extend credit to distressed businesses or will they demand cash payments up front?
Some services are already suffering, dentists, hairdressers, barbers, nail bars, vape stores and, believe it or not, pharmacists; in some cases the cost of subscription drugs are more than the retail cost that the government provides to the pharmacist as suppliers push up prices due to an increase in demand or shortage in supply.
Factor in that the government reimburses the pharmacist one month after the invoice has been settled therefore adversely affecting cash flow.
Food retailers are benefiting from the lockdown. Supermarket sales have increased significantly. The local butcher, fishmonger, green grocers, corner shops are as busy, if not busier, than before.
I modelled my business to be closed until the end of May. I have an internet presence on Discogs, a host site for recorded music, thankfully this has boomed whilst record shops are closed. I also provide a social distancing free local delivery service to my regular customers.
The rate of failure is inextricably linked to the duration of the lockdown. The longer a business is closed the more cash diminishes.
Businesses that are currently in debt producing marginal profits won’t last. Some profitable businesses with healthy cash balances will be able to ride it out.
Suppliers and landlord forbearance can only be extended within their own cash-flow requirements. They are unlikely to extend this to weaker businesses.
The Government and banks have schemes to assist but these are temporary and are taking too long to get to the business community.
Strong businesses will succeed, weak businesses will fail. Despite having a great deal of sympathy for those that cannot sustain the lockdown the remaining traders coupled with new entrants to the market will provide a better, smaller, more condensed, offer making visits to the high street more attractive.
Businesses that can provide a service beyond that of the internet; essentially fulfilment, where post sales service is poor. Customer-tailored inventory, personal sales service and advice, and exemplary post sales service that engenders customer loyalty.
Main photo by Gordon Montgomery
Gordon Montgomery is owner of The Centre for Better Grooves on Gloucester Road
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