Life
    Money

    It’s make-or-break time for retailers – and the economy

    26 November 2020

    Take a stroll through central London and you’ll be overwhelmed with Christmas cheer. The angels and fairy lights are draped above Piccadilly, the shop windows packed full of evergreen, holly and ornaments. Fortnum & Mason has been transformed into the most decadent Advent calendar imaginable, and Cartier’s building is wrapped up in a giant red bow. Similar festive displays can be spotted all across the UK: Cardiff Castle is now a winter wonderland, the Edinburgh Zoo has unveiled its Arctic adventure, and the Belfast Christmas lights were switched on by domino effect, one part of the city following another.

    But although the decorations may be displayed in all their glory, there are only a handful of observers around to enjoy them. For the few people wandering past, window shopping is the only shopping permitted while non-essential retail is banned by the rules of second lockdown. The quiet streets create an eerie feeling, serving as a reminder of the pain the UK economy has endured this year. The empty shops are physical proof of the disastrous consequence lockdowns have on British business.

    ‘Non-essential’ shops are reported to have cumulatively lost £1.6 billion per week during the first lockdown, when they were forced to keep their doors closed. Essential shops — especially those, like supermarkets, strategically placed to expand their online capacity — may have seen business boom, but research from insurer Simply Business found the average small business lost nearly £12,000 between March and September.

    It was mainly restrictions, not consumer confidence, that created the slump in retail. Demand exploded once shops could open again; it’s an area where the UK economy has experienced a sharp, V-shaped recovery. According to the Office for National Statistics, retail sales hit 6.8 per cent above their pre-Covid level in October, with department stores and online sales alike moving in an upwards direction. But that trajectory has shifted again. Despite record-breaking retail gains over the summer and autumn, sales are forecast to fall in November, reflecting the circuit-breakers, fire-breakers and lockdowns that came into effect. The push from industry to get customers to do their Christmas shopping early has been undermined too, as the most severe restrictions since spring overlap with the months leading up to December.

    These are some of the many reasons why the British Retail Consortium (BRC) has dubbed England’s second lockdown the ‘nightmare before Christmas’. Its CEO Helen Dickinson estimates non-essential retail is losing £2 billion per week this time — worse than in the spring, and a devastating loss when many businesses rely on Christmas demand to make them viable for the rest of the year.

    This is creating ‘untold damage’, according to the BRC, in the run-up to the festive period. Early estimates give us a glimpse into the effect of the winter lockdown, and it’s painful indeed: UK Christmas shopping this year was set to exceed last year’s by several billion pounds. Now, according to Statista’s post-lockdown forecasts, 2020 will see a £10 billion collapse in the value of sales, down from £83 billion to £73.5 billion.

    It’s not just retail that’s going to struggle. The hospitality sector, which is usually overrun with demand for office parties and family meals out, is facing a similarly dire situation if it can’t operate semi-normally in December. A survey by industry bodies UKHospitality and the British Beer and Pub Association found a staggering 72 per cent of hospitality venues and pubs expect to close next year if restrictions on group gatherings stay in place. While an optimistic scenario would see a vaccine rollout replace Covid rules in the new year, a bad Christmas could put otherwise viable venues out of business months before it’s possible to return to normal.

    Is it all doom and gloom for the UK’s retail and hospitality sectors, or might a Christmas miracle be around the corner? The return of the tier system next week — as a substitute for England’s lockdown — will be providing many business owners with a sense of relief, as all tiers will see non-essential retail reopen. This isn’t just a win for employers. The Treasury also wanted to prioritise retail, aware that not doing so would risk further business closures, increase unemployment and cause another economic contraction, worse than the one already forecast to occur.

    But the news isn’t so good for hospitality, which will be forced to stay closed — apart from takeaways and deliveries — in Tier 3 regions. Nor does it match with the evidence: Public Health England’s report published just before lockdown found that restaurants and other food outlets were low down the list of venues where acute respiratory infection incidents occurred. Even in Tiers 1 and 2, where different forms of indoor and outdoor dining are allowed, the best-case scenario will be tables of six: falling far short from the large festive gatherings these venues would cater to in previous years. It’s going to be a painful season for hospitality, but England’s tier system isn’t even the worst of it: businesses in Northern Ireland have already had their Christmas hopes squandered. Another circuit-breaker is coming in for the first two weeks of December, closing non-essential retail once again.

    Similar to the first lockdown, the retail and hospitality markets are fast adapting to these difficult circumstances, redirecting investment and creating new strategies to tackle the barriers between shoppers and businesses. There are reports of office Christmas parties moving online, with restaurants offering Zoom cooking classes in place of a meal. Pantos are moving from theatres to drive-thrus, and businesses are creating Christmas hubs on their websites to make it a more festive online experience.

    British retailers have invested millions to expand their online capacity and reach, in a bid to keep up with the consumer’s shift to the web; according to internet body IMRG, November is set to break records for online shopping, as the combination of lockdown restrictions and Black Friday led to a 61 per cent increase in the first week of the month compared with last year. But access to more brands and products around the world hasn’t completely broken consumer’s newfound relationships with their local vendors: global data revealed by Retail Week finds searches for ‘available near me’ have increased by more than 100 per cent since last year.

    Perhaps retail’s saving grace will be the innovative nature of the industry itself and the customers that want to support it. But better online presence isn’t a substitute for restrictions lifting. The weeks leading up to Christmas have the power to make or break the viability of countless shops. The difference between admiring a shop front and walking through its doors has never felt more stark.