Lockdowns abroad hit earnings at home

Concerns in SA over a second wave, business warns of impact of tighter restrictions

A second wave of coronavirus infections in the UK and parts of Europe and the subsequent lockdowns are hurting some South African companies with operations there — and offer a cautionary tale for SA.

Germany, France and the UK are among the countries that recently imposed second lockdowns after spikes in Covid-19 cases.

Michael Mark, CEO of Truworths, which owns retail brand Office in the UK, said this week that central London, especially, has “been depressed since the pandemic hit the UK”. The UK’s second lockdown, which is due to run from November 5 to December 2, will “aggravate an already challenging environment”, he said. But one mitigating factor that should help the group in the UK is that almost 50% of its revenue is generated through e-commerce, said Mark.

Anthony Thunström, CEO of TFG, which owns fashion brands Hobbs and Whistles in the UK, said TFG London “saw some positive traction post the initial lockdowns”, but smartwear andworkwear will take longer to recover as many people continue to work from home. Stores in major centres, especially central London, “experienced significantly reduced footfall” since Covid began.

“The lockdowns have had a significant impact on retail turnover and near-term profits. We are fortunate that we have built incredibly strong brands and this, combined with our previous and ongoing investments in e-commerce, has allowed us to really push the envelope in relation to online sales and has seen us take significant e-commerce market share,” Thunström said.

Even in countries that are on top of the pandemic, lockdowns have had a negative economic effect.

Thunström said TFG Australia “traded very strongly” after initial lockdowns were eased, but was “negatively impacted” by the closure of 17 stores in New Zealand for two weeks in August and the closure of 84 stores in the Australian state of Victoria from August 2 until October 28.

TFG’s Australia and New Zealand business, Retail Apparel Group, owns brands such as Connor, Yd, Tarocash and Johnny Bigg. Investec’s UK office said the latest restrictions are “expected to hit certain sectors of the economy especially hard, namely hospitality, leisure, travel and physical retail”.

The group said that so far “financial services, the UK’s biggest industry, has weathered the crisis better than other parts of the economy. In the City [London’s business hub], Investec and other banks have focused on supporting clients through lending and equity capital raisings for corporates. Investec made a quick transition to working from home in March and will do the same this time around.”

Grocery group Spar said operations in Ireland, Switzerland and Poland are “all experiencing a second round of stricter measures or hard lockdowns”.

The rise in infection rates in other countries has sparked concern that SA may also experience a second wave.

Following a cabinet meeting on Wednesday, minister in the presidency Jackson Mthembu said President Cyril Ramaphosa will address SA this week about the Covid-19 situation and the government’s response.

Mthembu, who said the cabinet is awaiting the National Coronavirus Command Council’s (NCCC’s) report on the infection rate, expressed concern about people who behave as if the virus is no longer a reality.

Business organisations are confident another hard lockdown in SA will not happen, at least in the short term. But they warned of complacency among South Africans regarding social distancing and the wearing of masks, saying even a modest tightening of restrictions would be devastating.

Martin Kingston, chair of the steering committee of Business for SA (B4SA), said a “return to level 2 or level 3 lockdown would have major ramifications for an economy that is already on its back”.

SA needs “every possible assistance to stimulate economic activity, particularly … with respect to small and medium-sized businesses” that do not have the cash reserves to weather periods without income.

“The strategy to go into a lockdown was the correct strategy and, of course, coming out of it has been difficult. There are still areas of the economy that aren’t operating anything like they might normally be, ” said Kingston.

Cas Coovadia, CEO of Business Unity SA, which is a member of B4SA, said the country is “certainly not seeing drastic increases in Covid numbers”, but there is anecdotal evidence that people are letting their guard down as far as following health protocols.

He said it is not knownwhat the Covid-19 situation will be in a month’s time, but “we would certainly … urge government not to institute another national lockdown”.

“I think the reason why we are not where Europe and the US are is that we instituted a hard lockdown early in the game and opened up fairly late in the game,” he said.

Investec chief economist Annabel Bishop said if SA does see an “increase in restrictions it will likely be to level 2 or 3 and not to level 4 or 5”.

Truworths’ Mark said the threat of a second Covid wave in SA is a “concern” and that “although we gained useful mitigating experience during the April lockdown, a second lockdown would be devastating”. He is “hopeful” that this is an “unlikely scenario”.

Meanwhile, the NCCC decision to not extend Unemployment Insurance Fund/Temporary Employer Relief Scheme (UIF/Ters) payments past mid-September has been raised by business and labour with the government.

Kingston said there has been “ongoing engagement” at the government, labour and business consultative forum Nedlac about whether the Ters support should continue.

B4SA “supports the continuation” with the proviso that there is adequate solvency within the Ters fund to meet its obligations.

“We think that on an actuarial basis there are enough reserves in the UIF to continue to provide support. For as long as we are in a state of disaster, the commitment to make payments … should continue.”

The department of labour & employment said minister Thulas Nxesi “cannot comment until the matter is finalised”.

A return to level 2 or level 3 lockdown would have major ramifications for an economy that is already on its back Martin Kingston

Chair of the steering committee of Business for SA