Even after Government support, over half of major non-food UK retailers will run out of cash within six months.
This is according to a new report from global professional services firm, Alvarez and Marsal (A&M).
It outlined how every major non-food retailer is currently operating negative cashflow with non-food sales having fallen 70% during the lockdown.
Government response has proven a lifeline for major U.K. retailers, but working capital demands are due to intensify from June
Large multiple retailers were under significant pressure going into the crisis, driven by a legacy of inflexible lease structures and changing shopping habits.
Five out of the 34 major non-food retailers analysed already had negative cash flow at the outbreak of the pandemic, a possibility even for large, profitable companies that rely on credit and capital markets to fund investment, growth, and shareholder returns.
Modelling by A&M and Retail Economics shows that a 10 percent reduction in sales would have resulted in over two-thirds of major U.K. retailers falling into negative cash flow. But sales are forecasted to have dropped as much as 70 percent since the lockdown was introduced on 23rd March, tipping every retailer sampled into immediate negative cash flow.
Government policies have provided significant short-term support. A 12-month business rates holiday and the Job Retention Scheme directly address the majority of operating costs for U.K. retailers. Further concessions including the option to defer VAT, the Coronavirus Business Interruption Loan Scheme, the COVID-19 Corporate Financing Facility and protection from eviction for commercial tenants.
These support measures have proven a lifeline for retailers and as a result, scenario analysis by A&M and Retail Economics suggests that near-term liquidity over an initial three-month lockdown period is manageable for most large retailers.
Should the lockdown persist into the summer, working capital demands will intensify and large parts of the sector will be decimated as swathes of retailers seek additional funding in order to survive.
Commenting, Richard Fleming, managing director and head of restructuring Europe, A&M, said: “Government measures have spared the major retail brands from immediate collapse. You could characterise this three-month period as a payment holiday. But prudent retailers are still pivoting their focus towards what cashflow they have and can expect in future. This is the essential fact base upon which turnarounds can be built.”
Adding: “The next few weeks will be critical. Retailers need to ask themselves the tough questions and take steps to address underlying operational issues while they still have the chance.”
Yesterday, AMP reported how retail eyes are on China’s return as UK lockdown ‘artificially’ limits footfall.
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