“The more precisely we try to predict it, the less likely we are to be right.” That’s what Next chief executive Lord Wolfson told Retail Week about his Christmas scenario planning just a few days ago.
Wolfson could have had little idea how prescient his words would be as, over the weekend, details of a new lockdown were announced as the fight to contain Covid continues.
Next’s worst-case scenario already looks as if it could be optimistic. It envisaged the possibility of two weeks of store closures in England, Scotland and Northern Ireland and factored in a 20% full-price sales decline over the fourth quarter.
From this Thursday, so-called ‘non-essential’ retail faces a shutdown in England lasting a month, although trading is still allowed in Scotland and Northern Ireland.
“The only good things that can be said about the latest measures are that they are less restrictive than those imposed in March and the industry is better prepared for round two”
It could not have come at a worse time as the retail industry navigates an already disrupted peak period and hopes to recoup some of the ground lost during the first lockdown in the spring.
The only good things that can be said about the latest measures are that they are less restrictive than those imposed in March and, having got through that tumultuous period, the industry is better prepared for round two.
This time, retailers forced to shut in March will be permitted to operate click-and-collect services, although that will certainly bring challenges. It’s not hard to imagine queues of the sort that built up to get into stores last time, putting pressure on staff and systems and making for a frustrating shopper experience.
Retailers are also better set up to cater for increased online shopping, many having already ramped up capacity and borne at least a proportion of the associated costs.
But how well online can stand up to another likely surge in demand at what is traditionally the busiest time of the year is another question. Even the mighty Amazon, which last week posted a 37% third-quarter sales rise and expects a rise of between 28% and 38% in the fourth quarter, has warned that capacity would be “tight” in what was expected to be “an unprecedented holiday season”.
And, as was the experience of many retailers previously, even a rise in online demand may not be enough to compensate for lost store sales.
Having acted to address liquidity when the pandemic first broke out, many retailers are in a stronger financial position. But even though they may be more prepared this time, there is no getting away from the fact that the hit to revenues threatens to be substantial.
The previous lockdown, according to the British Retail Consortium, cost ‘non-essential’ retailers £1.6bn a week in lost sales. Following news of the latest lockdown in England, Primark revealed that it anticipates lost sales, including from closed stores in some European countries, of £375m.
Broker Investec observes: “We do not expect demand to collapse in the initial weeks as seen in the first lockdown; we expect consumers to adapt more seamlessly, having been through the experience once already. We are looking for demand to fall off between 40% and 60% with higher basket size partially mitigating lower footfall.”
So Covid may not entirely steal Christmas, but the likelihood is that many retailers will be waking up to not much more than a lump of coal.
“The authorities’ handling of the emergency looks more chaotic by the day and, ultimately, the retail industry’s health depends upon that of the population”
It remains to be seen whether the lockdown will end as planned on December 2, and nobody should hold their breath.
The authorities’ handling of the emergency looks more chaotic by the day and, ultimately, the retail industry’s health depends upon that of the population. But much of the population is highly unimpressed with how the pandemic is being handled.
A recent YouGov poll for Sky News, for instance, found that 52% of people thought the government was making the wrong decisions and 67% would back a ‘circuit breaker’ lockdown.
Throughout the crisis, retailers have demonstrated incredible resilience and adaptability, but that can only go so far.
For lockdowns and their impact on retail to end, people need to feel reassured that the pandemic is being brought under control.
Mass testing and a test-and-trace system in which the public has confidence would be the best Christmas present that retailers can hope for. Retail leaders should exert all the influence they can on politicians to make that happen.
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