As Covid restrictions tighten and the prospect looms of further ‘circuit breaker’ measures, Retail Week looks at how the industry would fare in a second lockdown.

There is increasing concern about rising coronavirus cases, and at the weekend, health secretary Matt Hancock warned that the country was at a “tipping point”. While the government may hope to avoid a complete national lockdown, it was clear that was a possibility as Hancock urged the public to “follow the rules” in order to avoid it.

The warning came in the wake of localised lockdowns in many parts of England, including the North East at the end of last week. Altogether, local lockdowns already affect about 13.5 million people in England. 

A circuit break, unlike the months of lockdown that began in March and which pushed some retailers over the edge, might only last a few weeks. However, fragile footfall and the closeness of the crucial Christmas trading period make the retail industry nervous. Retailers are doing their part to minimise the chances of a surge in infection – at the weekend, Morrisons, for instance, stepped up marshalling at its stores.

Industry analyst Clive Black noted that Morrisons expected to create 2,240 jobs around increased hygiene at its stores, and believes that “through listening, Morrisons has recognised the real concern on behalf of many British shoppers about the dangers of the coronavirus and the need for reassurance in their shopping experience”.

Riding the wave?

A second lockdown is possible as Covid cases rise

A second lockdown is possible as Covid cases rise

British Retail Consortium chief executive Helen Dickinson believes that increased hygiene and social distancing measures in stores have worked. She maintains the fact that many non-essential retailers that closed during the first lockdown and have since traded through more localised lockdowns shows that all shops can be made Covid-secure and ought be exempt from future closure.

Even so, with cases currently doubling every week in the UK, further curbs are almost certain. As one industry source observes: “It seems pretty inevitable that we’re heading for a second wave. Obviously, for retailers who rely predominantly on sales from stores, that’s not going to be good.”

The source believes, however, that the government will not seek to close non-essential retailers this time, unless as a last resort. Yet the impact of restrictions such as curfews and limits on group numbers, combined with concerns about testing, will add to consumer concerns and potentially affect trading.

“I think realistically there won’t be a second full lockdown,” the source says. “Not a direct repeat of what happened in the early part of the year, because that would be political suicide for the Conservative Party. But there will be enough other curbs put in place that, in everything but name, will have a similar effect.”

Retail Economics chief executive Richard Lim is blunt about the effects a second lockdown would have on a retail sector still reeling from the first wave. 

“A second lockdown is going to be devastating for the retail sector”

Richard Lim, Retail Economics

“A second lockdown is going to be devastating for the retail sector,” he says. “Many retailers are still in survival mode – cutting costs, closing stores, reducing staffing hours and doing everything that they can to preserve working capital.”

Despite such measures, Lim says the majority of retailers are in a much worse financial position now than they were previously. 

“It’s just a matter of fact that if there’s a full-on lockdown, second-wave scenario, many more retailers are going to fall into administration because they just don’t have the finances to weather the storm,” he concludes.

Retail property company Ellandi’s chief executive Mark Robinson is also concerned about the impact on the industry in the event of another lockdown. He told the BBC last week: “A second major lockdown is the last thing that the industry needs. It’s been a huge effort by everybody – local government, voluntary organisations, owners and operators of real estate – to reopen again. 

“Having to close, only to open again, in the run-up to Christmas when most of our partners make their money would be nothing short of disastrous.” 

Footfall figures

The latest Springboard footfall data may offer some glimmers of hope in terms of the effect new restrictions have had on customers. Footfall has actually increased 2.4% since the government introduced its new ‘rule of six’ limits on socialising this time last week. However, Springboard’s insight director Diane Wehrle cautioned that the upturn might have been a result of customers “making the most of the last days of summer”. 

Footfall overall remains historically weak. Across all high streets, shopping centres and retail parks, footfall was 28.7% lower year on year, while footfall in central London was 56.1% lower.

“It’s looking more optimistic than we thought, but there’s a lot of work going into realising that outlook”

Industry source

With footfall figures still wallowing, one industry source says those retailers with multichannel offerings will again be in a strong position should a second lockdown happen: “Online sales have continued to be buoyant.” With an eye to Christmas, he believes “it’s looking more optimistic than we thought, but there’s a lot of work going into realising that outlook”.

Retail Economics’ Lim agrees, but says a second lockdown would deepen the performance disparity between retailers with strong ecommerce positions and others. 

“Those retailers that have a really good, sophisticated online proposition will be able to cope with a second spike and surge in demand for online,” he says. “Those that don’t, won’t. What I do think we’ll end up seeing is a polarisation between those retailers that have sophisticated online propositions with those that don’t.”

Lim also argues that customers may be less disrupted by being forced to shop online entirely in the event of a second lockdown, because of the behavioural changes driven by the first months of the crisis.

“Even those consumers who have since gone back to more multichannel behaviour, shopping both in-store and online since stores reopened, will find it much easier to revert to online-only shopping behaviours in the event of a second lockdown because they won’t be new any more,” he says. 

Online and local

Superdry chief executive Julian Dunkerton is certainly banking on online sales picking up the pieces in the event of a second lockdown. “I think the channels will really depend on the pandemic and lockdown. The good news is that if stores become more difficult, then online will grow.”

Meanwhile, Next chief executive Lord Wolfson said there had been “not much” impact on sales from local lockdowns, when he updated the market last week. 

“The important thing about those local lockdowns is they haven’t required us to shut shops. It’s quite binary. If shops stay open, we will take money.” he said.

Also, with enhanced health and safety measures in place at the business, Wolfson was positive on prospects. 

He said: “In the event that we go into another full lockdown, it won’t be as bad as the first, largely because we won’t have to close our warehousing. If there was a second lockdown, we’d expect the second half to be down 25%.” 

Perfect storm

However, as Lim points out, a second lockdown could fall in the most important time of the year for sales – the peak trading period. 

“In terms of timing it’s arguably worse in the Golden Quarter than it was at the beginning of spring,” he says. “It’s just such a critical time for retailers. So much of what they sell happens in this final quarter, especially now, as a lot of that spending will be brought forward because of Black Friday.”

With the furlough scheme also poised to be withdrawn at the end of October, Lim predicts “significant further job losses” should stores be forced to close at the same time as the support packages end. 

While the nation holds its breath, many retailers and industry representatives are trying to stay positive about the possibility of new, country-wide restrictions.

However, any second lockdown that disrupts the important festive period could be the final nail in the coffin for retail businesses that only narrowly survived the first.