What’s the Story?

On October 31, in a severe blow to UK retail in the peak holiday season, the UK government announced a four-week lockdown for England. This lockdown forces nonessential retail stores to close from November 5 to December 2. The move was unexpected: Since September, Prime Minister Boris Johnson had been resisting calls from health advisors and opposition politicians for a short “circuit-breaker” lockdown of around two weeks amid rising coronavirus cases. The UK government has defined essential retail stores—which can remain open—as food shops, supermarkets, garden centers and certain other retailers providing essential goods. Nonessential retailers can offer click-and-collect services from their stores. This report provides an update to our previously published Holiday 2020: UK Retail Outlook from October.

Why It Matters

The shape and scale of consumer demand during the holiday peak was less certain than ever, and a four-week lockdown in England has disrupted the picture even further for the UK. Coresight Research’s coverage provides directional guidance to retailers, suppliers and vendors.

UK Holiday Retail Outlook Update: In Detail

A four-week shutdown of nonessential retail represents an unprecedented blow to the sector, particularly given that retailers were looking to the holiday peak as an opportunity to help offset the impact of the first lockdown. For nonessential retail, that first lockdown ran from March 23 to June 15 (although some nonretail restrictions continued thereafter). The best guide we have to the impact on retail of a second lockdown are the trends seen in the first lockdown. Across the full shutdown months of April and May, total retail sales fell by an unweighted average of 14%. Declines during the second lockdown could be less negative than this, because underlying demand for gifting may not fall off in the way that demand for regular nonfood or discretionary purchases declined during the first lockdown (e.g., clothing for the workplace). However, total spending on holiday gifts will be hit by the impact of the lockdown on employment and incomes among some shoppers. [caption id="attachment_118729" align="aligncenter" width="700"] Source: Office for National Statistics/Coresight Research[/caption]   The first lockdown saw store-based nonfood retailers’ sales fall by 54.5% year over year in April and 41.4% year over year in May. This sector includes online sales by multichannel nonfood retailers, which helps to account for the decline not being closer to 100%. In addition, some nonfood retailers, such as home-improvement stores and pharmacies, were allowed to remain open. Food retailers and online-only retailers saw growth accelerate during the first lockdown. [caption id="attachment_118730" align="aligncenter" width="700"] *Incl. mail-order retailers
Source: Office for National Statistics [/caption]  

What We Think

A four-week November lockdown will be disastrous for the retail sector overall. We can expect to see very substantial year-over-year sales declines across the store-based nonfood retail sector in November 2020. Following the UK’s announcement, Primark stated that lockdowns across a number of its European markets—accounting for 57% of its total selling space—will result in an estimated £375 million (around $485 million) of lost sales. Total retail sales could decline by double digits, year over year, during November. However, demand for Christmas gifts and other holiday-related purchases may prove more resilient than the purchases shoppers make primarily for themselves—and so total declines during the second lockdown could be less negative than those during the first lockdown. We expect to see shoppers and retailers make widespread use of the exemption for click-and-collect services in nonessential retail to capture holiday spending. Post lockdown, December is likely to see a strong bounce, as consumers scramble to get their holiday shopping back on track. However, the three-week period between the planned end of lockdown and Christmas Day is much too short to fully recoup sales lost in November. In addition, capacity will be a major constraint on meeting that December demand.

• E-commerce fulfillment was already facing likely capacity challenges, and the distortion of demand caused by lockdown will intensify these challenges. We expect logistics capacity to be a constraint on e-commerce expansion this holiday season, during and after lockdown.
• Once lockdown ends, social-distancing requirements will impact brick-and-mortar capacity and therefore sales. Managing in-store shopper numbers according to a fixed capacity implies a greater year-over-year decline in shoppers during peak shopping months than during quieter periods of the year.

Assuming substantial sales declines in November, some discretionary retailers will head into the new year with raised levels of inventory. Attempts to clear inventory and generate cash are likely to fuel a strongly promotional environment in discretionary retail into 2021. A November lockdown will be the last straw for some retailers, who had been banking on peak holiday demand to help offset losses from the extended first lockdown of nonessential retail from March to June. We expect to see a renewed wave of retail administrations (bankruptcies) and company voluntary arrangements, which are used to reduce liabilities including shuttering stores and renegotiating rents. UK store closures, already running at 2,207 year to date versus 771 in the whole of 2019, are likely to accelerate. Any extension of the lockdown beyond December 2, would be a disaster for UK retail, effectively writing off the holiday season.

Appendix: UK Covid-19 Timeline 

The UK was put into lockdown on March 23, initially for three weeks, in an attempt to limit the spread of the coronavirus. Nonessential retail stores were closed. On April 16, the government extended the lockdown by another three weeks. On May 11, Prime Minister Boris Johnson announced that the government would begin easing restrictions in a phased manner, allowing nonessential stores to reopen from the start of June. However, garden centers were allowed to reopen from May 13 and furniture stores from May 23. On May 26, the government announced that all nonessential retailers in England and Northern Ireland—including department stores and small independent shops—would be allowed to reopen from June 15, but stores would need to implement measures to meet the necessary social distancing and hygiene standards. On June 23, Johnson announced that restaurants, pubs, museums, cinemas and hotels could reopen on July 4. On September 14, a new “rule of six” prohibited social gatherings of more than six people, unless they are from the same household. On September 22, Johnson outlined a slew of new restrictions in the wake of a fresh spike in the number of infections. These included the closing of bars, pubs and other hospitality services by 10:00 p.m., effective September 24. On October 7, the Scottish government implemented tighter restrictions, largely on the hospitality industry. Retail was not directly affected, although stores were requested to enforce two-meter distancing. On October 12, the UK government announced a three-tier lockdown system, which classifies regions based on the severity of infection rates. In the week beginning October 19, a number of regions in England, including London and Manchester, moved into higher “tiers” of control, which include restrictions on households mixing and, in some cases, some service industries; however, these did not change the direct rules for retailers. On October 23, a 17-day lockdown began in Wales, with nonessential retailers being forced to close once more. On October 31, Prime Minister Johnson announced a second lockdown for England for the period November 5 to December 2. All nonessential retail must close, “including, but not limited to, clothing and electronics stores, vehicle showrooms, travel agents, betting shops, auction houses, tailors, car washes, and tobacco and vape shops.” Food shops, supermarkets, garden centers and certain other retailers providing essential goods and services can remain open. Nonessential retail can remain open for delivery to customers and click-and-collect. Hospitality venues like restaurants, bars and pubs must close but can still provide takeaway and delivery services. Also being forced to close are indoor and outdoor leisure facilities, entertainment venues and personal care services.