Analysis: What does the job support scheme mean for retail?

After seven months of operation, the government’s job retention scheme, more commonly known as the furlough scheme, comes to a conclusion at the end of October.

While the coronavirus pandemic continues to impact the UK, which has now fallen into recession, some have argued that the government should still offer businesses a lifeline to help them retain employees and stay afloat.

Enter the job support scheme – a six-month programme designed to top up the salaries of workers that companies cannot afford to bring back full-time.

Eligible employees must be in a “viable job” in which they can still work at least a third of their ordinary hours. 

For the hours they do not work, the government and the employer will each pay a third of the remaining wages, meaning they will receive at least 77% of their standard pay.

However, many larger retailers, such as Kingfisher, Tesco and Ikea, have already brought all their employees back from furlough and even started making repayments to the government.

And retailers have not stopped hiring. Tesco said this week that in addition to creating 16,000 permanent roles in August at its online business, which has grown rapidly during the pandemic, it will hire another 11,000 staff over the Christmas period. 

The fact is that for many big retailers, the job support scheme will not be needed. In fact, it is specifically targeted at businesses likely to be hit by lower demand over the winter months, which for retailers bring – however uncertain the outlook – the Christmas peak and January Sale periods. 

Financial viability

For big retailers, many of which have already cut jobs as they adapted to a landscape changing before the pandemic hit, the new programme would not change anything. The point is that they operate according to the needs of their model and how many people are required for that.

So the scheme is most likely to make a difference to smaller businesses, for example, independent or small retailers that may have been hit hard by lack of footfall in city centres.

That said, some big names do see specific circumstances in which the scheme may help them preserve jobs. Store relocations are one example, says Greggs chief executive Roger Whiteside: “If you get to a position in the consultation where you’ll need to lose some roles in a shop location because you can’t agree to reduced hours sufficiently without avoiding job losses.

“If we know we’ve got a new shop opening in or near that same location, but it won’t be open for a couple of months, this is another tool in the armoury to… keep those people on board, top their pay up with the government, alongside knowing that we’ll need them in a couple of months.” 

The difference between furlough and the job support scheme is that the latter has less universal application and would cost companies more. After seven months of the pandemic, it has become clear that businesses cannot keep all staff indefinitely. 

While sales levels have improved since lockdown regulations were lifted, for many retailers they have not returned to pre-Covid levels.  

Retail sales improved by 3.9% year on year in August on average but while homewares and grocery have rebounded, categories such as fashion, footwear and beauty continue to struggle and are unlikely to see a change in the golden quarter without the usual whirlwind of seasonal events and parties. 

“Where it’s not really got the application that we’ve seen with the broad-base furlough is that you can’t use it as a bridge to an open-ended gap,” says Whiteside. 

“You can’t use it in the hope that general trade will recover at some point. From that point of view, it obviously doesn’t have the same application as the furlough scheme.” 

While the new policy may not be applicable to protecting jobs in the retail sector, its use in other industries could help keep consumers in their jobs. That should raise confidence and spending, meaning retail will also get a much-needed boost. 

The Christmas question

One retailer where Christmas is vital is toy specialist The Entertainer and chief executive and founder Gary Grant does not expect to use the job support scheme.

He explains: “With regard to employees, because of the seasonality of our business, all of our employees are either back now from furlough or about to return from furlough.

“We would generally take on quite a lot of extra Christmas temps. We’re not doing that this year so all of our staff will be working full-time and flat out between now and Christmas anyway. 

“I’m not sure that we’d be in the position to take advantage of any kind of part-time support, definitely not between now and Christmas.”

It will be how Christmas and its aftermath play out, rather than the existence of the new jobs scheme, that will ultimately affect retail and its employment prospects. 

Grant says: “A lot of quarter one next year will depend on how quarter four this year performs and how the virus settles down – whether we come to live with it or whether there is a vaccine.

“The next three months are critical. We have to make Christmas happen and once it has and we have seen at what level it has happened, the planning will move on.”

Grant observes that the balance between online and in-store sales will be key to figuring out where to prioritise labour costs next year.

“We’ll have to make sure we’ve got the correct level of staffing for whatever the new world of turnover is. Obviously if more business turns online, I’ll need to resource that and have less in shops,” he adds.

Bigger fish to fry

The end of the furlough scheme may be a concern for some smaller businesses but for many, there are far bigger issues affecting retailers’ financial health and therefore jobs in the industry – primarily the burden of business rates.

Retailers from WHSmith to The Entertainer are in dialogue with landlords to secure new deals and reduce or defer rental costs, but business rates is the issue many retailers really want to see addressed.

“Retail is on a delicate path to recovery but the looming threat to this remains the £8bn business rates cliff-edge from April 2021,” says BRC director of business and regulation Tom Ironside.

“Retailers need certainty and the chancellor must take action and bring down the business rates burden in order to avoid unnecessary job losses and shop closures.”

While the job support scheme will be welcome news for some, it’ i not the good news the retail sector would most like to hear. That would be for the government to address the long-running problem of business rates – and that might save more jobs.