Surviving in retail post COVID-19

A recent letter to the government from industry body Retail Excellence noted that “Typically 70% of retail profits are made in the Christmas period with many retailers trading at a loss for up to six months of the year”. After a difficult 2020 for retailers, Aiden Murphy, recovery and restructuring partner at Crowe, looks at survival tactics for retailers in Ireland.

While the online share of retail trade has been increasing each year, ecommerce sales have seen explosive growth in 2020. Since the beginning of the pandemic, many shoppers have moved from viewing online buying as a convenient way to an essential way of getting everyday goods and we will be left with a very different retail landscape post-COVID-19. 

The challenge facing retail

The big challenge for retail businesses in 2021 is to adapt their operations to survive in a post-COVID-19 world. Retail businesses will require new strategies and a different operating model and those that embrace and invest in online are going to be better placed to survive. 

There are three priority areas:

• Find a way to reduce physical store overhead 
• Keep selling even when the physical store is closed
• Widen your customer base

Most recognise that the pandemic has permanently changed the way we shop. New consumer behaviours, likely to continue long after the COVID-19 pandemic ends, will result in:

• The share of online sales in 2021 likely to be 300% more than the equivalent levels in 2019
• Customers likely to become mission shoppers, going to a store for a specific need or purpose
• Higher levels of unemployment leading to more cautious spending and perhaps a lower average spend per visit
• Working remotely leading to more local shopping
• Competitors closing and their customers up for grabs

What we are likely to see is a rationalization of the retail sector with fewer outlets but ones that are better configured and offer higher quality, which might mean a fresh start for many operators and more working in tandem with others in the same space or supply chain.

We will see more investment in the back of house, in warehouse management in terms of space and people, and so front of house will need to be streamlined. 

The strategic decisions therefore are around getting your rent cost down, having resources to invest in online infrastructure, embracing Click & Collect, delivery and personal shopping services, and accepting all forms of online payment.

Even before the pandemic, retailers needed to be on this track. For instance, since 2018 Marks & Spencer have been closing unprofitable stores across their portfolio and driving traffic through their online platform, where their target is to have at least 33% of sales by 2022. At the same time, they are investing in the remaining stores to improve customer experience and they are finding that customers are travelling further to their nearest Marks & Spencer store as a result.

There have been high-profile casualties in the retail space, as large-scale brands such as Debenhams, Topshop, Swamp, Monsoon, Mothercare, Quiz, Cath Kidston, Oasis, Warehouse, LK Bennett and Pamela Scott have all had problems during 2020 and have moved to close or reduce their physical retail footprints. 

The goal for existing retailers as we start 2021 is to ensure that they have a compelling cross-platform proposition. By creating a seamless customer experience across their store and online channels, retailers can reinforce their customer value proposition and continue to create real engagement to provide a long-lasting value advantage.

How we can help

At Crowe, we can assist with devising a robust strategic plan for impacted businesses in the retail space, that may include a restructuring plan and a funding plan. The approach would be to reset the business to the necessary level of investment and cost base going forward. For many retail businesses trapped in uneconomic legacy leases, this may mean a shutdown of the company and a move to a location that allows a more viable option that can survive and grow in the post-COVID world. 

There may also be a need for a reduction or redeployment of front-of-shop staff, and if redundancies are needed this can often lead to a decision to shut down and relaunch. 

Our insolvency and restructuring team has the experience dealing with challenged businesses and helping to plan the right course for the company. We can advise company directors on their duties when facing liquidity challenges and how to negotiate with landlords. 

We provide advice on changing business strategy, examinerships and liquidations as part of the toolkit available to allow businesses to change from being under pressure to seeking out opportunity.

For assistance with any matters to do with restructuring a retail business please contact our insolvency and restructuring team.