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Morrisons faces takeover battle in pandemic aftermath
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Bricks won’t protect retailers from winter woes


As government support winds down and shoppers settle into online habits, high street retailers are battening down for an uncertain winter, reports Mark Bisson.

15th Sep 2021
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With the reinstatement of full business rates for all but the smallest operators and the winding down of the government’s furlough support scheme, the retail sector is braced for more uncertainty in the run-up to Christmas.

An analysis of the retail sector last week by PwC revealed that more than 8,700 British chain stores closed in the first six months of 2021 due to the pandemic and a shift to online shopping.

Retail parks, easily accessible by car, inevitably saw a smaller number of net closures (634), compared to high streets (3,643) and shopping centres (1,464), according to research compiled by the Local Data Company. The study said footfall in cities had yet to recover to pre-pandemic levels due to greater numbers of people working from home or adopting hybrid working

The report paints a bleak picture of the retail sector as chain stores and independents prepare for the festive season.

On the upside, PwC said spending intentions were gradually returning to pre-Covid levels.

Long Covid haunts retail

Lisa Hooker, consumer markets lead at PwC, said she expected the trend of shop closures to continue as the fall-out from the pandemic lingers on. Some retailers face financial challenges in reaching agreements with landlords on rent arrears, she added.

But Hooker saw some green shoots of optimism in residual desire among consumers for a physical shopping experience and, crucially, in retailers embracing the potential of ecommerce platforms.

The penetration of retail sales online peaked at 36% in January and has since dropped to 27%, according to Hooker; pre-Covid it was around 19%

“I think a lot of brands did pivot quickly to online very successfully and engaged with their customers effectively,” she said, adding that retailers were offering more customer service and personal engagement online, with consumers being more savvy with click-and-collect transactions.

“Consumers want to research, shop and collect wherever they want, whether on the phone or going to shops. There is a social aspect to shopping which isn’t going away,” she said.

The British Retail Consortium (BRC) last week reported a slowdown in retail growth. Sales increased by 3.0% in August, against growth of 3.9% in the same month last year.

Helen Dickinson, CEO of the BRC, said the figures indicated a softening in the post-lockdown pent-up demand.

But online sales growth remained high compared with pre-pandemic growth rates, which showed Covid’s impact on a shift to “the digital-physical shopping balance and increased the linkage between the two channels”.

Retail performance in August was mixed but clothing, footwear and accessories continued their recovery. Food and drink sales in August were broadly flat compared to 2020’s performance, according to the BRC update.

Supply chain and staff issues

Among the increasing challenges for retail is the impact of inflation on household spending. Supply chain issues and staff shortages are also hitting many retailers, notably Morrisons.

The supermarket giant has struggled to recover from the impact of the pandemic. Now engulfed in a takeover battle, its financial travails underline the distress being felt across retail by companies that were slow to pivot effectively to ecommerce.

Susannah Streeter, senior investment and market analyst at Hargreaves Lansdown, said expanding on Amazon would significantly increase online sales for Morrisons. But given supply chain issues across the industry, there could be “hiccups on the way to a higher profit trajectory”, she added.

“Morrisons says it has a plan up its sleeve to mitigate potential cost increases, and stock shortages, but it’s hard to forecast just how tough the next few months may be,” Streeter commented. 

Many of the challenges for the sector in the run-up to Christmas, including reduced consumer footfall, difficulties tapping new routes to market and supply chain interruptions, were flagged up in PwC’s Retail Outlook 2021, which drew on the lessons learned from 2020’s turbulent year of trading.

The report urged retailers to look at “cost consciousness” and adjust their cost base to fit the business. It highlighted digital transformation as “crucial for competitive advantage as well as survival… giving access to more customers and revenue, and reducing costs”. 

PwC’s Lisa Hooker was bullish about the outlook for retail in the build-up to Christmas but warned of “headwinds” the sector will face as government financial relief is removed and people start switching money from retail into leisure.

“Christmas always sees a spike in online shopping, so I don’t think that changes,” she said.

“A quarter of people told us they are expecting to spend more and they want to make Christmas extra special after last year. They will need to spend early because there will be some availability and stock issues.”

Advice for high street clients

Asked what advice she had for accountants advising high street retail clients, Booker said: “In the short term, how are you going to manage supply issues, cost inflation and labour shortages?

“In the longer term, what’s your strategy to deal with the emerging trends of converging business models? How are you going to win in the marketplace? Where are you going to play to be relevant to your customers and how are they going to deal with a rapid increase in demands for responsible business?”

Alastair Barlow, founder of flinder and a specialist in the ecommerce sector, thinks retailers those who have complementary physical retail and ecommerce strategies will benefit most in the months ahead.

He has been advising retailers to invest in ecommerce: “How much do you need to invest and where? You’re going to have different overheads, different cost structures and metrics you’ll be looking at.

“It’s a new world if you go from a physical building to an online real estate where you are competing for very different footfall… for website traffic. It’s a very different skill set that’s needed to grow that as a channel to market,” he said.

“Also as an accountant you’re going to need different skills to understand the right metrics, harness the right data and be able to really understand whether the longevity of your strategy is there or not.

“Those who already had that as part of their strategy have done well. Those that haven’t are behind the curve.”

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