- Guest Contributor |
The difficulties facing the UK’s retail sector are deeply entrenched and well-publicised, sparked by the shift to online retail, spiraling overhead costs, and the need for a facelift. As the Government continues to introduce recommendations and restrictions, devised to delay the spread of Covid-19, retail is now in danger of imploding altogether with the effects of lock-down endangering the very survival of retailers and their landlords alike. In order to give the High Street a fighting chance once normality returns, there is a need to act now.
Earlier this month, Debenhams became the latest high street casualty after feeling the effects of the pandemic. Despite successfully fighting off a challenge to its CVA in September last year, the combination of creditor pressure and Covid-19 forced the business to take urgent protective action.
Debenhams is not alone. As a matter of survival, New Look recently announced plans to suspend payments to suppliers for existing stock "indefinitely" (as reported by the BBC), telling them in a letter that the stock can be collected by its owners. Primark and Arcadia have gone further still, and cancelled huge orders from their suppliers. While this may be seen as drastic action from big players, getting access to credit lines remains a fundamental obstacle for many businesses and, over the coming months, the fallout from coronavirus is likely to be huge. However, the Government has stated its intention to facilitate cash injections and other financial assistance to businesses, recognising the imminent threat of insolvencies in many sectors. These measures include the temporary business rates relief set out in the Budget, which will benefit many smaller retailers in the short term.
Now that retailers across the UK have physically shut up shop, innovation is essential to ensuring brands can still get their name out there. Jing Daily reported that luxury fashion e-commerce company Net-A-Porter has risen to the challenge, working with Chinese fashion designers to create avatar skins for characters in Nintendo’s latest release, Animal Crossing: New Horizons. Not only are the virtual designs from the spring and summer collections available to download, fans are able to purchase the real items and have them delivered straight to their door.
For many smaller companies, their immediate concern will be to request rent holidays, suspension, reduction or a different payment schedule while they are struggling with the effects of lockdown.
While, for retailers, business innovation is key to success in unprecedented times, there are also practical issues to consider around managing cash flow relating to their bricks and mortar property portfolios. Despite the Government extending its business rates holiday to all retail companies in the UK and authorising loans from Banks, for many smaller companies, their immediate concern will be to request rent holidays, suspension, reduction or a different payment schedule while they are struggling with the effects of lockdown. This can only be achieved if they engage with their landlord and seek to reach a negotiated position.
Retailers' rent during shutdown
By explaining and evidencing the effects of coronavirus on the business to their landlord, tenants can open negotiations about whether a rent reduction, rent holiday or a more manageable payment plan is possible. To facilitate this, retailing tenants are turning to experts to assist with their proposals. To aid this process, it is important to ensure that all paperwork is up to date and all evidence of business disruption is documented and can be produced, if asked.
Over the past few weeks, many retailers, both big and small, have withheld rent payments. However, this is a dangerous game. In the current climate, tenants should avoid making any impulsive or reactionary decisions. Where things are constantly changing, understanding contractual positions is more important than ever. Recently, temporary changes to the law mean landlords cannot take possession of a property for three months. However, withholding rent comes with risk, as landlords can still begin rent recovery action against a tenant, or a guarantor (if there is one), even if they cannot evict tenants and retake possession of the property.
When the going gets tough, communication is key. A two-way dialogue between landlords and tenants is essential in negotiating a solution that benefits all parties and preserves the long-term relationship.
It remains to be seen how quickly the processes for accessing promised funds and other payment mechanisms will materialise. As always, cash remains king and, while boosted sales from e-commerce are a silver lining for some retailers, this will only go so far to supporting those without access to credit lines. For now, retailers must begin innovating, communicating, and documenting the effects of the pandemic on business, in order to give the sector a fighting chance at beating Covid-19.
This article was written for FashionUnited by Julian Joseph, real estate partner and retail specialist at law firm, Shakespeare Martineau. Shakespeare Martineau delivers a broad range of specialist legal services. The firm believes that legal counsel is only one piece of the jigsaw and bespoke business solutions are designed firmly around clients’ needs.
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Image: Tolga Akmen / AFP