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A year on from when Covid-19 hit, what next for the UK retail sector?

With news announced this month that British retail suffered its worst annual sales performance on record in 2020 amid the Covid-19 pandemic*, we look at where the sector is now and what challenges lie ahead.

The UK high street has had an unsettled start to 2021, with well-known retailers hit by a clothing sale slump. Marks & Spencer said its clothing sales dropped by a quarter over the key Christmas trading period on the back of Covid-19 lockdown store closures.

However, the figures show that there are winners and losers, with a slump in demand for high street fashion and homeware products but strong growth for those selling home improvement products like B&Q and Screwfix owner, Kingfisher and online retail giants like Very Group and The Hut Group.

Innovative retailers who have adapted and invested in their online offering to connect with consumers are doing well. Supermarket have announced strong trading figures but that is hardly a surprise. The strength of grocery sales mean it is likely we will see an increase in etail penetrating food markets and also see businesses that support online retailers, such as logistics and courier companies, continue to grow.

With rapidly increasing rates of infection across the UK, a national lockdown and talk of non-essential stores being closed until March, there is a stark warning that the situation is not going to improve anytime soon for high street retailers.

Many now hold the view that the world we knew has gone.

As a result of lockdowns and the closure of non-essential businesses, consumers have had to change their purchasing habits and have turned to digital ways to shop and this looks like a pattern that is set to continue.

There is a massive amount of credit debt compounded by Covid-19 and furlough arrangements and we are yet to see how and if it will be paid back. There are concerns the UK will suffer a severe recession in the first half of the year which will delay the recovery of the economy.

Owner managed businesses and the SME market make up a big sector of the retail economy and the concern is how they will continue in business. With many having taken out loans under the CBILS/ Bounce Back schemes, we are yet to be made fully aware of how the recovery of these funds will take place where re-payment does not occur voluntarily. Government has provided assurances to lenders in the event of default but no clear guidance as to what form of default will be sufficient to ensure a claim will be approved. Will it be simply an application or will the lender have to obtain judgement and force borrowers into insolvency proceedings? Time will tell.

Critical to the future of retail is the success of the vaccine rollout, which will offer stability, a degree of confidence and enable a new normal to emerge.

Businesses concerned about their financial position should seek professional advice as early as possible. To discuss any corporate recovery or insolvency issues you may have, please contact Jeremy Oddie or Julie Webster below.

*BRC-KMPG retail sales monitor

Written 27 January 2021.

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