Retail stores in the UK have now re-opened their doors to the public after a three-month lockdown in a bid to ease the country back to ‘normal’, but what does ‘normal’ now look like for the high street?
Whilst the grocery trade and cycle shops have been boosted during lockdown, the impact of the pandemic on UK retailers has been severe, especially as most had already become stretched due to increased rents, business rates and the competition faced from online retail. Covid-19 has accelerated the shift in shopping patterns that were being seen pre-lockdown and whilst there are some shoppers who will feel comfortable returning to the high street, for many there will remain a desire to shop in a different way.
It is important that bricks and mortar retailers do all that they can to minimise their outgoings and to be transparent with their consumers and Landlords, in order to get the support that they need to survive. So, what can retailers do to ease financial pressures, survive the pandemic and thrive during the ‘new normal’?
Do comply with the Code
On the 19 June 2020, a new Code of Practice (the “Code”) was introduced in a bid to provide a negotiating framework for landlords and tenants and to ultimately encourage fair and transparent discussions over rental payments and any rental arrears. Whilst the Code is entirely voluntary and only a temporary measure, it is intended to promote collaboration and cooperation within the sector amid uncertain times. Some larger corporate landlords may be in a better position to give tenants the break they need, whereas local high street landlords may not be so fortunate. These considerations should be considered, and if tenants are able to pay, they should. Open and honest conversations between both parties and any lenders will encourage fair solutions and a good relationship for the remainder of the lease term. You can read more about the principles and guidance that the Code provides here.
Don’t bury your head in the sand
Many retailers will have already had difficult discussions with their landlords about rent suspensions or reductions and, in many cases, landlords may have agreed to this for the March or June quarter. However, with most non-retail stores now re-opening, landlords may be less forgiving of those who say nothing and continue to withhold payment. Shutting down shop and handing back the keys is also going to be ineffective as without agreement from a landlord, a lease will continue with full liability. Some commercial leases will already have rent suspension provisions contained within them but these are usually only triggered when there is physical damage to the property. So, whilst it’s a good idea to check, such clauses are unlikely to apply (especially as stores are now re-opening). However, there are other options to think about and retailers should be pro-active and think ahead about all of these potential options.
Do take a look at your insurance policy
Retailers should check their insurance policies for business interruption, crisis management or mitigation cover to see if this may apply to the present situation. At the moment, there doesn’t seem to be an answer as to whether insurance of this nature will cover business interruption for Covid-19, and whilst insurers have been unenthusiastic about the prospects of paying out for any claims relating to business interruption, the Financial Conduct Authority are seeking legal clarity in a test case. The judgement for this case is expected in mid September 2020. In the meantime, further details of the test which the FCA is looking to satisfy can be found here.
Do comply with health and safety guidance
Our recent article on establishing a safe return to work provides useful guidance on an employers’ health and safety obligations in the Covid-19 context. However, it is not just employees who may to be cautious of entering stores. The physical social distancing measures which retailers choose to adopt will encourage people to shop with confidence; the better and more stringent a retailer is at adopting these measured, the more likely it will be for shoppers to spend time in their shops. So, it is important to:
- Prioritise safety over profits.
- Ensure that changing rooms remain closed in line with government guidance.
- Put up plenty of signs to reinforce social distancing rules.
- Hold onto any returned stock for 72 hours.
When making these physical changes to stores, retailers should consider the terms of their lease and whether it permits such alterations. Whilst some alterations may seem minor, many leases will still require consent from a landlord, so it is always a good idea to check and seek consent where necessary.
Don’t forget about rates relief
From 1 April 2020 all retail, leisure and hospitality companies will be exempt from paying business rates for 12 months in order to help limit the financial damage caused by the pandemic. This can result in a huge saving for retailers and can help ease the financial pressures that they were already facing before the virus struck. There is no need to apply for the relief and further details of who can benefit can be found here.
And, most importantly, do tune in to your customers!
Although the above measures will assist with a smooth re-opening and should help ease the financial pressures which retailers are currently facing, success in the long term isn’t just going to be about negotiating rent-free periods or lining stores with social distancing stickers and hand sanitiser. Consumers have now had a chance to pause, reflect and reassess what’s important to them. For many, it’s all about what Mary Portas calls the ‘kindness economy’ and how retailers focusing on creating a connection with their consumers will thrive on the high street.
Consumer shopping habits will continue to yo-yo from online shopping to visiting physical stores, but where they shop will depend on the values that a brand holds. Retailers must recognise that, whilst there is power in bricks and mortar and providing in-store experiences, consumers are now more concerned and alert to how retailers treat their consumers, employees and the planet. Consumer expectations are higher today than ever before and certain businesses are pledging to listen to consumer needs. Millennials and Generation Z are focused on the world around them and retailers should have that in mind when considering their values and any changes that they intend to implement.
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