UK consumer businesses continue to face social distancing pressures

UK consumer businesses continue to face social distancing pressures

Businesses struggling, with many wary of committing to longer term strategies

UK consumer businesses continue to face social distancing pressures

Consumer-facing organisations continue to struggle to deal with current market forces – despite government support – with industry participants expecting further difficulties.

Things are particularly sparse in the hospitality sector.

“There have been a high-profile number of casualties prior to lockdown, more during and likely a number afterwards as things open up” says Trefor Griffith, head of food and beverage at Grant Thornton.

With demand severely depressed below pre-coronavirus levels, downsizing announcements for restaurants have been a common occurrence over the last couple of months. But Griffith says there is no simple solution to solve the hospitality sector’s woes.

“Unfortunately, I don’t think there’s a silver bullet that can be used to solve all the problems.”

He adds that the industry was already facing issues prior to the pandemic, such as labour supply and rising costs. The spread of coronavirus has compounded both.

“On top of pre-existing problems, the biggest issue coronavirus has created is the difficulty for businesses to plan ahead because of how fast things are changing.”

For many, the challenges are changing.

“Senior management or business owners have been stressed already over the past four months,” says Greg Palfrey, national head of restructuring and recovery at Smith & Williamson. “They’re tired, they’re fatigued and with reopening they need to switch into a new gear in order to bring staff back in and comply with social distancing. Those guidelines are also changing – often for good reason – on a weekly or sometimes daily basis, making it nearly impossible to plan for anything.”

“Uncertainty in certain sectors will just wear people out.”

Accountants at RSM have written an open letter to Chancellor Rishi Sunak, asking for a three-month extension to the temporary suspension of wrongful trading – currently due to expire on September 30 –  in order to cover the Christmas period and inject confidence into markets.

“The Christmas period for any consumer related business is huge. It generates the majority of their turnover for the year. Potentially a business will in better shape on the other side of Christmas as opposed to October 1,” says Ian Bell, head of pensions, travel and tourism at RSM and author of the letter.

However, several lawyers have pointed out that while the suspension severely reduces personal financial liability, it does not absolve a director of all responsibilities.

In addition to the general coronavirus support offered to all businesses, the government has also launched a number of targeted measures towards hard hit consumer sectors like rate relief and the ‘Eat out to help out’ initiative. But there is often a delay between the announcement of support and details on how to access it.

Palfrey gives the example of a theatre he is working with, which is on the brink of closure.

“All of a sudden we get an announcement of £1.57bn in funding for the arts,” he says. “As a headline that is fantastic but where it the detail? How do you get hold of it? Who can get it? What’s it for? How much can you get? Making an announcement, where the benefit it only realised maybe three months or more later, is a nice thing to say, but it doesn’t help a business that needs money today.”

For many businesses, government support is the only way they can survive through the pandemic but ultimately, even that may not be enough. The Office of Budget Responsibility estimates than 10 percent of CBILS/CLBILS loans will default while two in five BBLS loans will not be repaid.

“If you look at a theatre, most could only operate at around one-third capacity due to social distancing. On average, they need about 80 percent capacity to turn a profit. Even when they can reopen, it won’t help,” says Palfrey.

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