Testing times

Has the furlough scheme rescued the retail sector? 

The scheme has supported approximately nine million workers since March and been hailed by many as a success, with almost 74% of eligible retailers having claimed help from the scheme. Whilst the retail sector has found respite from the effects of the lockdown, it is estimated that almost 125,000 retail jobs (730,000 across all sectors) have been lost so far this year, with almost 14,000 shops having closed permanently.

Major chains that were struggling before the pandemic continue to do so, with 7,000 jobs being lost at M&S, 2,500 at Debenhams and 1,300 at John Lewis. Whilst the scheme has protected many jobs during lockdown, it couldn’t save all of them. Beyond this, there remains a major question mark over what will happen when furlough ends and whether there is a case for extending it.

Consumer expenditure has steadily risen since April, with spending in August exceeding last year’s level (the first month since the outbreak). Clothing and beauty expenditure has risen slowly, with the majority of gains in spending on household, personal and electronic goods. Retail footfall has also picked up, although remains over 20% less than last year’s levels. These figures are suggestive of a potential recovery however, with over 6 million workers estimated to still be on furlough, there are worries that these could soon lead to large job losses as the scheme is phased out: current Bank of England warnings suggest almost 2.5 million could be out of work by the end of the year.

Even if we see retail spend continuing to rise and reach (or even exceed) previous year’s figures, the issue is that most of the growth in expenditure has been from online sales. The need to socially distance and the closure of bricks and mortar stores significantly increased engagement in online shopping with internet sales rising over 50% between February and July, despite overall consumer expenditure being down.

And whilst it is very unlikely that customers will live in a world purely composed of digital and online commerce, Covid has rapidly accelerated the online focus and issues underlying physical retail prior to 2020. Overtime, public confidence and expenditure will pick up and the impact of coronavirus will diminish, but the shift to online will not. There was a crisis in retail before Covid, and the challenges posed then remain the key challenges posed now.

Therefore, extensions of schemes such as furlough may be effective in supporting businesses during the short term, nonetheless many retail businesses must still adapt to changing consumer behaviours and demands to survive. This could be done through new offerings, formats or channels; however, the advice therefore is to continue what many retailers were doing before the crisis – be proactive; be adaptable and fundamentally change their way of doing things.

Tejas Panchal