Analysis: Retailers face dilemma over post-furlough job retention scheme

On the face of it, what is there not to like about a scheme to help finance job retention as the retail industry and the nation seek recovery in the aftermath of the Covid lockdown?

The only complaint some retailers might have had was that, at £1,000 per employee brought back for at least three months after the government’s wage support scheme ends in October, the cash on offer pales into insignificance compared with the scale of losses sustained during the pandemic.

However, the decision from Primark not to participate in the scheme is likely to intensify focus on those retailers that do – especially if they are seen to have not done too badly during the outbreak or to have rebounded upon reopening.

Primark is turning down around £30m that it could potentially have collected by taking advantage of the job retention bonus, having had nearly all of its 30,000 staff furloughed between the end of March and middle of June.

The value fashion giant is simply doing what it and parent ABF bosses believe to be the right thing. Primark said “it should not be necessary” for it to make use of the scheme, because the majority of its employees returned to work when its stores began to reopen.

Similarly, while department store business John Lewis has not formally revealed its decision, a source with understanding of the situation said it would be unlikely to take part. The retailer is bringing back all remaining furloughed staff by the end of this month.

The decision by the two retail titans is likely to throw into the spotlight those retailers that do participate – and for some, that may lead to uncomfortable questions about the extent that they should benefit from public funds if, for instance, they have been able to pay dividends.

The issue became a lightning conductor at Tesco, which was criticised for paying a £635m dividend while benefiting from a similar amount in the government’s financial package to help businesses through the unprecedented disruption brought about by the pandemic.

‘Why would they take the money?’

Primark’s decision has drawn anger from some, who believe the retailer is grandstanding. However, one source familiar with Primark’s thinking rejects such a view and says the decision ultimately reflects the retailer’s strong financial position. 

While Primark’s annual profits will be down, it reported in its most recent update that it has been “encouraged” by trading since English stores reopened on June 15.

The source said its job retention scheme decision reflects that and the fact that profits are predicted to come in at £300m for the year.

“The Primark announcement is not a criticism of the chancellor, nor is it critical of other companies taking the money where they need it,” he says.

“Lots of businesses will need that money, that’s understood. But it seems only appropriate that if you don’t need it and your business is open, generating cash and will make a profit, then why would they take the money?

“It’s not about the optics. There’s a suggestion that this is all a PR stunt and it certainly isn’t. Primark’s thinking is just that with its stores open, trading and therefore generating cash, the money shouldn’t be necessary”.

Damned if you do

For ReputationInc strategic communications specialist Tom Wyatt, a strong business such as Primark can forgo a government fillip, but many other retailers will be in no position to do the same. In fact they would have a fiduciary responsibility to investors to take up the government offer. 

“You have an obligation to them to make up for the unavoidable loss to business and profit that you’ve had from the shutdown,” he says. ”Besides, it’s something that they’re entitled to – it’s not just a government giveaway.” 

Wyatt says that some retailers will undoubtedly be worried about taking advantage of the scheme in the run-up to Christmas, only perhaps to end up making redundancies in the new year, but maintains that they could and should do so. 

“This is just a way of the chancellor helping people trade through Christmas, giving them a bit of encouragement, but it won’t make much of a difference to retailers’ thinking beyond January.

“You have an obligation to [investors] to make up for the unavoidable loss to business and profit that you’ve had from the shutdown”

Tom Wyatt, ReputationInc

“If you’ve made the decision to close half of your chain, the fact that you’ll be publicly shamed as a taker of money is probably the least of your problems.”

From a reputational point of view, Wyatt says some businesses will suffer but, given the parlous state in which the virus has left the high street, there will be plenty of others in the same boat. 

“Ultimately, I’d take the money and not worry about the opprobrium because there will be plenty of blame to go around,” he says.

One retailer observes that another issue many retailers will face is how accessing the scheme might affect discussions with landlords on, for instance, moving to turnover-based rents, or with creditors in the case of CVAs or administrations. 

“If anyone’s having difficult conversations with creditors or landlords right now, turning down what is effectively free money from the government is probably not the best look,” he argues.

“If you’ve made the decision to close half of your chain, the fact that you’ll be publicly shamed as a taker of money is probably the least of your problems”

Tom Wyatt, ReputationInc

The retailer acknowledges that Primark’s decision may present a dilemma for some other big high street fashion names, which may feel pressured to reciprocate the gesture for fear of falling foul of the public and media. 

“I think the big boys like Topshop, New Look, Zara and H&M will all feel the pressure to reciprocate the gesture, but I doubt many can afford to,” he says.

One of the criticisms of the chancellor’s furlough scheme from when it was created in March was that it kicked the can of likely job losses down the road. Now, as it begins to taper off and retailers try to get back to business as usual, the end of the road looks perilously close for some 

While some retailers may be able to afford not to take job retention money, that is not a luxury affordable to most.

Some may be engulfed in reputational storms but – unless customers act with their purses in response – they will take the government money in the hope that it will help them live to trade another day.