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Risk of over-trading as retailers emerge from lockdown

Retailers are at risk of over-trading as they emerge from lockdown, says Mark Hart.

It looks like non-essential retail will open on 12 April as laid out in the roadmap, but it will not be plain sailing for many retailers. Many could overtrade and end up in trouble and not be able to pay their bills.

Traditional retail has essentially been closed since the week before Christmas and has missed out on post-Christmas sales, Valentine’s Day, and Easter trading. Cash resources which were already tight will continue to remain so for some time to come. Retailers need to work in partnership both with their suppliers and landlords to manage the easing of lockdown.

Cash remains king for retailers as they emerge from lockdown. Many small and independent retailers have had to use their own finances to meet supplier payments and while there are incentives, such as opening up grants, many of these will be used to meet ongoing and existing commitments. While Government support measures will be in place until the autumn, retailers must use this time to manage cash to prevent over-trading.

A key element of working capital is the management of stock. Retailers should consider their supply lines to not only ensure that they have the right stock on day one but that they can manage the pent-up demand that is expected to be released once stores re-open.

Supply lines are critical and need to be continually monitored. The recent disruption caused by the grounding of the container ship in the Suez Canal has shown just how tight supply lines have become. The pandemic and Brexit have made retailers aware of the need to move away from just in time supply lines to ‘just in case’, holding more stock than they would have done previously to ensure demand is managed. However, while this helps meet demand, this does mean that cash is tied up in stock. In order to manage this, retailers must manage payment terms with their suppliers and consider using consignment stock arrangements where possible. In this way they can manage demand and cash.

In addition, they should continue to manage stock by ensuring they have multiple suppliers so that they can continue to meet demand and avoid disruption should issues with supply occur. Businesses should consider whether shorter supply chains are more efficient at this time so they can remain responsive to demand.

The other significant cost is rent, only 15% of retail tenants paid their full quarter’s rent in March. While many retailers will have deferred rent while closed, landlords will expect to be paid as stores reopen. Although retailers may have appear to have the upper hand, but it’s not a matter of tenants good and landlords bad, they need to work together so that they both benefit.

Retailers should work together to enhance footfall. Campaign groups such as Save the Street are calling for a “shop out to help out” type scheme to attract shoppers to traditional retail. While this may not be forthcoming from Government, what is key is that retailers pool resources to enhance footfall at traditional retailers.

This should be driven at a town or shopping centre level and involve the use of social media to connect with customers. People want to maintain links at a local level, but retailers need to continue to embrace an online strategy and the use of social media to connect with their customers. This will not only drive sales through traditional means but also help to future proof their businesses.

Would you like to know more?

If you would like to discuss any of the above guidance, please get in touch using the contact details to the right or through your usual Blick Rothenberg contact.

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