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Johnson locks down UK high streets

Retailers up and down the country have already closed their doors
March 24, 2020

Prime Minister Boris Johnson has ordered the closure of all non-essential businesses and premises, forcing restaurants, leisure and most retail outlets to shut their doors to the public in the most dramatic restriction of UK citizens’ activity since the Second World War.

Many retail businesses had already closed their stores in response to falling footfall, and in a bid to protect staff from the coronavirus outbreak. The sector has also shelved dividends and accessed borrowing facilities as it prepares for months of strain on cash flows. “You should not be going shopping except for essentials like food and medicine,” Mr Johnson told the nation, adding that “you should do this as little as you can”.

In March, the service economy experienced its sharpest decline in business activity since IHS Markit/CIPS began compiling its purchasing managers’ index. This contraction, which was recorded before the government requested the closure of pubs, restaurants and cafes on 20 March, suggests that this trend is set to continue.

 

The high street is going further

All retail outlets, with some exceptions including home and hardware stores and bicycle shops, have been asked to close their doors. Early reports suggested that Frasers Group (FRAS), the owner of Sports Direct and Evans Cycles, had intended to keep its shops open during the lockdown. 

Frasers has since confirmed that all of its stores are closed, despite being allowed to operate Evans under the current measures. The group suspended its share buyback programme at the start of the week in response to the outbreak.

WH Smith (SMWH), meanwhile, is closing around 60 per cent of its outlets, but will continue to sell in hospitals, post offices and small communities. As a designated newsagent, WH Smith would likely be able to keep more stores open, but has opted for a stricter approach.

Sports clothing company JD Sports Fashion (JD.), home retailer Dunelm (DNLM) and Halfords (HFD) were among businesses that temporarily closed stores after the government’s orders, while motor retail groups Lookers (LOOK) and Marshall Motor Holdings (MMH) revealed their intentions to shut their doors in the run-up to Mr Johnson’s address. Dunelm, Lookers and Marshall all scrapped upcoming dividends.

Peel Hunt retail analyst Jonathan Pritchard earmarked Pets at Home (PETS) as a market leader that looks well-positioned for this crisis. Pets at Home has closed its grooming salons but kept its core services ongoing. It has recently experienced volumes usually witnessed during the Christmas season, while its online channel has also been busy and has been lifted by business from new customers.

“There are some very robust businesses that will come out stronger,” he said. “You need market leaders in these circumstances.” 

Coronavirus will likely open up an already widening gap between dominant businesses and their weaker rivals, he added. “What’s going to happen now is that process will happen just a bit quicker… the strugglers are going to struggle a bit quicker than perhaps they would have done otherwise.”

 

Will customers move online?

Retailers will not be able to offset the impact of store closure with online sales channels, however. Online demand for non-food items is expected to be weak. “People do not buy a new outfit to stay at home,” admitted Next (NXT) chief executive Simon Wolfson last week. Next temporarily closed all of its stores on 23 March.

Mr Johnson implored the British people to use food delivery services where possible, although this avenue will not be straightforward. Online food businesses such as Ocado (OCDO) have witnessed a spike in demand, and earlier this month Ocado temporarily closed its website for maintenance. 

“The first business to actually fall over operationally in this crisis was Ocado,” observed Shore Cap analyst Clive Black. “There was much more flexibility, much more capacity in the store-based operations.

“Even though they’ve been cleaned out, it was [stores] that fed the whole country, in all honesty.”