After the toughest of years, retailers were dealt another savage blow in the crucial final trading week ahead of Christmas.

A surge in Covid cases and fears over a new variant of the disease plunged 21 million people, including residents of London, into new tier four restrictions, including the closure of so-called ‘non-essential’ stores.

As if that was not enough, the consequent closure of the French border throttled a key supply route into the country and the delivery of some goods, especially produce, looked as if it was in jeopardy. 

It was a perfect storm to end a tempestuous year. What will be the implications for the retail industry?

What will the impact of tier four be on trading?

Trade body the British Retail Consortium (BRC) put the potential loss of sales to retailers at about £2bn per week.

The lockdown prompted department store and sports goods giant Sports Direct to withdraw its profit guidance. The retailer said: ”Given this is a peak trading period, and combined with the high likelihood of further rolling lockdowns nationwide over the following months at least, such is the uncertainty of when stores can and cannot open that the Board of Frasers Group plc can no longer commit to achieving its publicised guidance.”

Fortnum & Mason suffered a near-70% fall in sales on Sunday. Chief executive Ewan Venters feared the imposition of Tier 4 would have a ”devastating impact” on retail. 

He maintained: ”There may now be many businesses which are technically insolvent but holding out because of furlough. This cannot be good use of government resources.”

Toy retailer The Entertainer’s executive chair Gary Grant says: “The lockdown, which is affecting 50 of our shops, is a body blow in one of our biggest weeks of the year.

“We totally understand the need to be vigilant in these difficult times, but from a business perspective it’s a challenge because the stock’s in the shops; we’re ready to sell it, but we can’t.”

Empty Oxford Circus

London is under tier four restrictions, which see non-essential retail closed 

However, he accepts that the lockdown looks necessary. “It’s disappointing that it has to happen, but if I was prime minister I probably would have done it. An extra few quid in the till this side of Christmas and the virus getting even more out of hand is not a good swap.”

Superdry chief executive Julian Dunkerton says that, although the clothing brand is less impacted than others due to having a national and international store estate, the impact of “a huge swathe of stores missing out on two key weeks of trading cannot be underestimated”.

“If you compare how we are feeling with the first lockdown, it’s chalk and cheese. We are war-ready, not war-weary”

John Edgar, Fenwick

Despite the unwelcome developments, many retailers are better set up to cope with renewed lockdown.

As Fenwick chief executive John Edgar puts it: “If you compare how we are feeling with the first lockdown, it’s chalk and cheese. We are war-ready, not war-weary.”

For many that is because, while there is no getting away from the fact the majority of retail sales go through stores, they are better set up to trade online this time.

Two big retailers told Retail Week that, having now been through several lockdowns, they “know the drill” and are in a stronger position to once again pivot towards online. 

In November, for instance, M&S boosted capacity at its Castle Donington online fulfilment centre.

However, many retailers’ last date for pre-Christmas online delivery had already past.

M&S’s cut-off for standard delivery clothing orders was last Friday, before the new tier four rules were introduced, but it will offer in-store collection to fulfil last-minute purchases.

John Lewis’ cut-off point for pre-Christmas deliveries was December 18, while its cut-off for click-and-collect orders ends tomorrow. Collection from its own stores, including those in tier four, as well as from stablemate Waitrose and third-party partners such as the Co-op is available on the 23rd.

But many stores will face a hard time. In the week to last Saturday, when tier four plans were announced by the government, footfall was up 2.3% week on week across all destinations, according to shopper traffic monitor Springboard.

On Sunday, the first day of the new restrictions, footfall unsurprisingly plummeted. It was down 39.9% week on week in tier four and the year-on-year slide was 64.3%.

Patterns familiar from earlier in the pandemic were evident again as shopping centres and high streets took the biggest hits, with retail parks being more resilient.

Food fears and last-minute changes of plan

Springboard forecasts that footfall in high streets and shopping centres in tier four “will decline further as shoppers divert their attention to retail parks where essential stores, such as food stores, are located”.  

It said: “In the light of the closure of the ports and the restriction on freight entering and leaving the UK for the next 48 hours, it is expected that shoppers will start their food shopping for Christmas today as they will be concerned that supplies will run out, and as each day passes the demand by shoppers will increase.”

Queue at Sainsburys

Grocers are braced for a busy few days as people stock up for Christmas 

Changes to travel and socialising rules in tier four will prompt an overhaul of Christmas plans as many will now be having much smaller celebrations in their own homes instead.

Big grocers, including Sainsbury’s and Tesco, had already extended opening hours in the run-up to Christmas to be able to better manage footfall and ensure safety.

M&S is among those trading longer and said it expected a switch in types of purchasing by people in tier four. A spokeswoman said: “The key thing now is people suddenly having to host themselves.”

On Monday M&S, in what it said was a UK food retail first, also launched on-the-spot payment service Pay With Me, enabling customers to get in and out quickly by processing payments rapidly, so avoiding queues and congestion in stores.

What are the implications for January and the new year?

Many fear that the new restrictions will last weeks, perhaps months, putting hard-pressed retailers under continued pressure.

“We’re planning to be locked down until April. We think we’re heading for a three-month full lockdown”

Gary Grant, The Entertainer 

Grant says: “We’re planning now to be locked down until April. We think we’re heading for a three-month full lockdown just as we had earlier in the year.”

Edgar says: “The virus doesn’t have a calendar. The uncertainty is very difficult to deal with. We are making an assumption that everyone will be in tier four from December 30 and we will be closed for at least January. 

“We are looking at closures to the end of February or March, and each scenario means different things. The biggest challenge is buying seasonal stock, because what customers want in January is fundamentally different to what they want in April. 

The entertainer

Retailers such as The Entertainer have been forced to close in tier four areas 

All this uncertainty means retailers want policy support from the government. 

Dunkerton believes the government should cut VAT payments for a six- to eight-week period to allow retailers “to clear stock while still making some money” and says the business rates holiday should be extended for another 12 months. 

“Mr Sunak really has to step up to the plate and deliver for retail now,” he says.

Grant called for the government to introduce phased VAT payments for the Christmas quarter and longer-term action on rates. 

He says: “In the middle of the financial crisis, they gave phased payment of VAT.” He believes that such a break could be critical in allowing retailers to manage their cashflow.

Venters said: ”We need an immediate extension to the business rates holiday, and VAT to be reduced to 5% like they’ve done for hospitality. These two factors will help boards financially plan.”

BRC chief executive Helen Dickinson has renewed calls for an extension of business rates relief. The BRC has also called for a ‘furlough’ approach to rents, under which retailers, landlords and the government all make a contribution.

“The biggest gift the government could give retail is more momentum in vaccination and mass testing so the industry can trade its way out”

Helen Dickinson, BRC

Rates, she says, is the “headline” issue. VAT relief, for instance, would not help stores that are closed.

Dickinson says retailers are making their financial plans now and a change to the rates regime could be concretely factored in.

However, ultimately, it is solutions to the health emergency that are needed. She says: “The biggest gift the government could give the retail industry is more momentum in vaccination and more mass testing so that the industry can trade its way out.

“What happens is dependent on how quickly businesses can reopen and that’s about vaccines and testing.”

What impact will port closures have?

The Covid concerns have been accompanied by chaos at ports such as Dover, which have also raised fears that the delays of the last few days give a foretaste of what a no-deal Brexit might be like.

At the time of writing, it looked as if a solution to the problems at Dover could be agreed with France.

Lorries at Dover

Some fear port delays could be a taste of things to come under a no-deal Brexit 

The greatest concern has been over food supply. Sainsbury’s cautioned today that, unless the situation changed, “We will start to see gaps over the coming days on lettuce, some salad leaves, cauliflowers, broccoli and citrus fruit – all of which are imported from the continent at this time of year.”

Some non-food retailers, however, are more sanguine. Grocers are most reliant upon road haulage, rather than the container vessels that typically bring in general merchandise – although container ports, such as Felixstowe and Southampton, have been affected by a backlog because of Covid.

However, many big retailers have planned for port delays as part of their Brexit preparations and view the problems in that context.

When it issued results last week, for instance, Dixons Carphone said its “reasonable worst-case scenario” factored in delays of a couple of days, which it was more than able to handle. That is because of its strong relations with suppliers and importance to them as a market leader.

A John Lewis spokesperson said: “We have good stock levels leading into Christmas, but like all retailers we are experiencing delays at some ports.

“We’ve been contingency planning for some time and are working closely with our suppliers to help mitigate stock flow issues. We’re confident, though, that customers will continue to shop online, especially with our winter Sale.”

Not all retailers will be in such strong positions. They will be grateful for speedy resolution of delays.

The port problems, unless made permanent in the event of a no-deal Brexit, look as if they may be shorter-lived than the continued coronavirus crisis.

But the effect of the two has combined to create a nightmare before Christmas for the retail industry – a nightmare from which some may never wake up.