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COVID-19 and The Retail Industry - Karishma Khosla

What is the issue?

COVID-19 has undoubtedly been detrimental to the retail industry with retailers suffering their worst annual sales performance on record in 2020, driven by a slump in demand for fashion and homeware products. These are some of the lowest figures recorded within the last 25 years and it is not just the loss of the High Street that we ought to be concerned about, but also the wider effects it will bring.

Impact on the retail industry

Retailers have been facing restrictions for almost a year due to the pandemic and whilst there has been some easing of these, it has not been enough to make up for the previously incurred losses. This is evidently due to a lack of consumer confidence forcing people to spend less. Moreover, the closure of stores has reduced impulse buying as it is far easier to avoid temptation.

The wider issue is that people were visiting the High Street far less often even prior to COVID-19. The reason for this is the convenience offered by online shopping, which meant that consumers were far more inclined to order online, especially given that many sites offer free delivery and/or returns. The higher costs for High Street businesses have prevented many from offering free delivery and returns.

Despite the threat of a £1 billion lockdown loss, one retailer that has failed to adopt an online platform is Primark, presumably because the implementation of an online site would incur large start-up costs. Other online retailers such as ASOS and Boohoo have seen increases in sales by as much as 40% just within the last four months of 2020.

A key consideration here is whether consumers would accept the increased prices in order to have their favourite bargain store return, or whether increased prices would be too damaging to Primark as it dilutes their USP. It must be noted of course that failure to survive within the pandemic could lead to store closures and the overall downfall of Primark anyway.

What does this mean for law firms?

The struggling economy pioneered ample new deals which will undoubtedly shape the future of the retail landscape. This is evident through Boohoo’s £55 million purchase of Debenhams. The deal excluded the stores, which illustrates the growing belief that the high street will never fully recover. That ASOS followed suit and purchased the Topshop, Topman and Miss Selfridge brands and stock from the Arcadia Group reiterates this further. Although these deals highlight the shift to online platforms due to changing customer needs, they are highly damaging as they result in mass unemployment.

However, these deals illustrate the recovery of the M&A market which, along with capital markets, will be integral in fuelling the journey to economic recovery. This is significant for firms with a strong Private Equity practice as their Banking and M&A teams will see an influx in work. Moreover, the struggling retail industry makes further restructuring inevitable and many retailers will enter administration soon after government injections wear off. The introduction of new insolvency legislation is designed to support struggling businesses; however, it will require lawyers to engage and understand it in order to best support their clients. There will be many new learning points from the pandemic and it will be imperative for firms to embrace these changes and adapt.

The Future of the Retail Industry: is there a remedy?

One fundamental reason for the decreased consumer spending was reduced consumer confidence. However, it remains clear that this collapse was not entirely due to the pandemic, but merely catalysed by it. Nonetheless, mass vaccinations and the easing of lockdown restrictions may bring good news to the retail industry, but is it too late?

Some have suggested that the Chancellor of the Exchequer should launch a programme – similar to the Eat Out to Help Out scheme – to support the retail market’s comeback. This may, for example, include the provision of vouchers for adults in the UK to go and spend on the High Street when stores reopen. However, this is arguably just a sunk cost if the retail industry is inevitably going to fail afterwards. Initiatives like this will also have long term effects on the economy given the excessive government borrowing they entail but they may be worthwhile if they can successfully protect against the mass unemployment that would otherwise result.

Admittedly, the travel and hospitality industries have been impacted most directly, but it would be a mistake to ignore the pending death of the retail industry as it seems COVID-19 has caused it irreparable damage.

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