Summer may be around the corner, but chill economic winds are forecast to blow through many a UK high street for a good while yet. According to a recent report published by PwC and the Local Data Company, store closures hit a record of 48 per day during 2020, with shopping centres particularly badly affected and losing 7.1 per cent of their units. In light of these troubling statistics, what might the future hold for the UK’s high street occupants?
The high-street response
The response has broadly speaking been twofold. On the one hand, a number of businesses – including some large, household names – have sought to seize the initiative by taking matters into their own hands, concluding that their future prospects are best served by undertaking remedial measures now.
Into this camp fall those that have sought rent concessions from landlords. Where consensual negotiations with landlords have failed, some have resorted to formal insolvency procedures – hence the wave of ‘landlord’ CVAs over the last year from the likes of Caffe Nero, Pizza Express, Pizza Hut, Poundstretcher and Travelodge. Others have concluded that some parts of the high street are no longer for them and closed stores altogether, such as the recent decision made by Thorntons. And then sadly some, like Debenhams and a large part of the Arcadia Group, have fallen into administration – their presence on the high street removed and their core brands sold off to online retailers.
There are various reasons why this group have been forced to take such actions. Some have long leases on loss-making sites without any expectation of a future turnaround, whilst others have concluded that the moratorium on forfeiture and restrictions on the use of winding up petitions does not wipe out rent arrears and an operational restructuring is needed now.
And then there is a second group of high street occupants who have soldiered on and not yet succumbed to the worst effects of the pandemic. Many of these have benefited from government support measures. And who can blame them? As recently as last week, the moratorium that prevents landlords from evicting commercial tenants for non-payment of rent has been re-extended until the end of June, and this year’s Spring Budget granted further extension of the business rates holiday as well as the VAT cut for hospitality and tourism businesses. The furlough scheme has also been extended to September and from April, the new recovery loan scheme is available to the end of this year.
Planning for the future
Much uncertainty abounds. No one knows how quickly and in what volumes consumers will return to the high street, or whether the shift to online shopping and takeaway dining, accelerated by the pandemic, reflects a permanent change or just a passing fad. Add to this the future whereabouts of the UK office worker – with many predicting a hybrid working pattern (e.g., a split week at home and the office) – and it is clear that high street occupants will need to be flexible as they plan for a highly unpredictable future.
However, one thing is for certain: government support measures will not last forever. There will come a time when businesses are expected to stand on their own two feet. When that time comes, re-starting operations whilst being hamstrung by accumulated rent arrears, VAT liabilities and CBILS/BBLS debts built up over the pandemic will prove the real test that many business owners fear.
Solutions
In truth, there are no one-size-fits-all answers. We hear that city centre locations are proving less popular, with some high streets in smaller towns experiencing a ‘renaissance’ and retail parks holding up comparatively well, as shoppers can access them without using public transport. But these are all generalisations.
We have also seen the following developments: tenants offering incentives to landlords to accept rent concessions by moving towards a turnover-based rent; seeking new investment from investors (sadly not always an available option for employee-owned businesses like John Lewis); exploiting new consumer preferences (such as takeaway services), or new supply or debt channels (perhaps by enhancing supplier credit terms or partnering up with delivery providers). Some may also look to flex banking covenants and maturities, whilst others might re-purpose premises to enhance the shopping experience. Undertaking an operational restructuring via a formal legal process to buy more time from creditors might also be an option.
Undoubtedly, these are challenging times that might take some while to recover from. But those who can flex and emerge from this period from a position of strength may find they have a very healthy future to look forward to.
This article was first published on Caterer Licensee & Hotelier News, read here.
Tim Carter
Matthew Padian