High Streets Initiative · 1 April 2020

Is COVID-19 taking out the weaker retailers?

carluccios-closure

Restaurant chain Carluccio’s and ‘rent to own’ home electronics provider BrightHouse are the high street’s latest casualties, their closures put nearly 5,000 jobs at risk.

The two companies that collapsed this week failed due to long-term changes impacting the retail and hospitality sectors including shifting consumer habits and preferences. However, both were dealt a final blow from the social distancing measures implemented by the Government as a result of COVID-19.

With the changing retail climate and the Government enacted store closures creating a perfect storm for failure, retail experts predict that more administrations will come, prompting the question, will coronavirus take out the already underperforming retailers, or are all high street businesses at risk?

COVID-19 and retail

Following the Government’s ordering of the closure of all non-essential retailers, UK high streets are deserted, with in-store demand non-existent and consumers tightening their belts online as rising numbers are laid off and put on furlough. This hostile environment has already led to the closure of a number of household names, including women’s fashion and homeware brand, Laura Ashley where administrators have made 268 of its staff redundant and placed 1,700 on furlough.

Commenting on Carluccio’s demise, retail specialist, Dr Gordin Fletcher says the brand’s underperformance caused in part by the death of its founder Antonio Carluccio in 2017 made it terminally weak before the onset of coronavirus: “Carluccio’s were already struggling and at-risk before this, (coronavirus*) started. Social distancing has really ensured that it was a quick ending. This closure also reveals the impact that the relatively recent death of the founder has had on the business’s organisational culture.”

Weakened brands

However, it’s not only internal failings that are to blame for the restaurant’s demise, market changes, caused by a post-Brexit shift away from casual dining also weakened the brand. In fact, these were the same factors that Jamie’s Italian founder Jamie Oliver said killed his restaurant chain last year.

Changing consumer habits have also affected burger chain, Byron, which underwent financial restructuring in 2018 and closed all of its underperforming restaurants. Currently, they are looking to furlough a majority of their staff and access loan schemes provided by the Government to keep the business afloat during COVID-19.

The impact of the coronavirus lockdown on the retail and hospitality sectors is significant, an example of its ability to destroy a brand can be seen in Laura Ashley’s sudden demise; with the news of the company’s administration coming days after “it had seen no effect on its trading from coronavirus.”

The company had been seeking an emergency loan before the COVID-19 lockdown measures were implemented, suggesting it was already in financial trouble. Like so many other high street retailers, Laura Ashley had inevitably been impacted by the competition caused by online-only stores that can offer consumers access to cheaper goods.

Internal vs external factors

Another well-known retailer feeling the impact of coronavirus is outdoor wear provider, Mountain Warehouse. The firm is considering axing as many as 2,000 jobs following a drop in sales which has been described as “catastrophic.”

Dr Fletcher continued his analysis of the high street by suggesting its latest casualties were a result of underperformance and outdated business models, which were triggered into collapse by the footfall decline caused by coronavirus:

“BrightHouse’s closure reflects the impact of increased public scrutiny and dissatisfaction with the business model among its target customers. The closure of stores will be a challenge for its current customers who must continue to make their payments despite the shutdown.

“While these two failures have come only a few days into the government’s stronger social distancing measures there will be others as the pressure of having no casual high street shoppers will place pressure on their cash flow and the rationale for their underlying business models.”

Declining purchasing power

While enforced store closures will kill off many already struggling retailers, with the rising numbers of workers on reduced salaries as a result of mass furlough measures, as well as rising numbers of unemployed which some say could rise to 1m, successful retailers may soon find they’re struggling too.

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ABOUT THE EXPERT

Annie May is the Features Editor at Real Business and Business Advice. Following her graduation from LSE, she embarked upon a freelance career in current affairs journalism. Annie has written on subjects varying from African history and contemporary politics to community business and current affairs news in London. At Real Business and Business Advice, Annie is passionate about highlighting inclusive and diverse business disruptors and organisations for our evolving readership. Annie believes in fostering community inclusion and has volunteered for organisations such as Fairfield House, a UK based Rastafari centre and a senior citizen association for ethnic minority men and women.

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