Retailers feeling the strain in uncertain times
THE coronavirus pandemic is a problem for retailers.
Government restrictions mean most have had to shut all their shops and that will have an immediate impact on revenues, profits and a company’s ability to generate cash.
Cash is what businesses use to pay employee salaries, service interest payments on debt and also funds any dividends. With cash drying up almost overnight a number of retailers have already shelved dividend plans to help keep cash on the balance sheet.
Among these is Marks & Spencer, and we think preserving the pennies is a good move.
M&S’ Clothing & Home division has been struggling for a while, which coupled with the high costs of running a high street estate means profit has declined.
Current disruption will make this worse. Not only will sales suffer now, but margins could hurt longer term. If less stock is shifted and the group’s left with piles of inventory, it will need to slash prices in order to sell it at a later date.
The food business has been faring better, and as the pandemic progresses sales should continue to benefit from the group’s stellar home-dining options. The joint venture with Ocado could do wonders for online sales, too, when it goes live in September, especially as millions of us are becoming more reliant on digital shopping.
At the other end of the high street there are the specialist retailers, among them Dixons Carphone.
The group’s now shut all its Greek and UK stores, which were expected to contribute around £400million in sales for the rest of this year.
The economy is unlikely to recover immediately when the pandemic is over. Retailers are limited in what they can do to limit the damage – and the full impact will simply depend on how long the disruption lasts, and how quickly the economy recovers.
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