The Coronavirus (COVID-19) pandemic has caused tidal waves across the globe – the gross domestic product (GDP) of most countries has been drastically impaired. In response the government has pumped billions pounds worth of funding into key sectors across the UK to help mitigate some of the impact of the pandemic on the economy. However, many businesses are still struggling, and some might not be able to recover at all.
The retail industry is one of the sectors that has been hardest hit by the pandemic given the necessary stringent social distancing restrictions that have been imposed to prevent the spread of COVID-19. Almost daily, we hear of yet another retailer that has fallen victim to the pandemic – most recently, retail giant Intu Group, which owns 20 shopping centres across the UK, including Manchester’s Trafford Centre.
The difficulties of the Intu Group have been well-publicised for a while given the continued and some would say accelerating transition of the average consumer’s shopping habits from physical store visits to online. Intu’s demise is undoubtedly a big blow to the North of England, especially with the group employing thousands of workers across five shopping centres in Manchester, Newcastle and Stoke-on-Trent.
What Intu’s failure also underlines is the drastic effect of the pandemic on many of the social constructs we have come to take for granted over the years which have accelerated the demise of outdated business models. This is particularly true for traditional brick and mortar retailers, including once popular department stores such as John Lewis, which has already warned that some of its physical shops will not reopen post-COVID.
While the impact of the pandemic has been devastating, businesses who have been able to adapt and survive will perhaps see this period as an opportunity.
Ultimately, sustainable success must be built on an ability to build and maintain a positive balance sheet, deliver profits and generate cash. At the start of the crisis this would have been hard to visualise for many business owners. However, the unprecedented support –
monetary and through amending insolvency legislation – provided by the UK Government has bought many businesses valuable time to review whether their existing business model is viable post-COVID and if not, whether it can be remodeled in a way that makes it relevant and profitable going forward.
Therefore, now is the time for business owners and managers to urgently re-assess their business models and put in place measures to reposition and evolve the business – whether it’s a greater focus on the online channel, or diversifying the business offering.
Intu group administration process
For companies unable to escape insolvency, a formal process such as an administration will be the likely route to maximising any remaining value for the benefit of creditors, including employees. This will be the primary objective of Intu’s court-appointed administrators.
In a majority of cases, administrators in waiting will be engaged some weeks in advance to undertake contingency planning preparation for the implementation of the administration process. As soon as the formal administration process has commenced, the administrators will rapidly seek to get operational control over an entity’s business and assets.
In the case of the Intu Group, the administrators by now will likely have ranked the group’s individual shopping centres from the most saleable, such as the Trafford Centre in Manchester, to those which will garner less interest.
Strategically, in order to maximise net recoveries the administrators will prefer sale transactions where entire shopping centres are purchased by acquirers, as opposed to a more segmented disposal of individual leases across the group which will prove a less efficient and costlier strategy.
Ultimately, the extent of time available to the administrators to formulate an optimal asset realisation strategy will depend on the level of cash left in the group’s coffers to continue trading until all sale interest has been bottomed out. Therefore, the extent to which the administrators are able to quickly negotiate a funding line from existing or new lenders to enact this strategy will determine how long a business can continue to operate in the short-term.
It is difficult at present to predict how successful the administrators will be in seeking to dispose of Intu’s shopping centres however, it should be noted that the impact of COVID-19 on the brick-and-mortar retail model may make this process particularly challenging. Their success or otherwise in this regard will determine how many of Intu’s employees will be retained.
The UK’s retail sector has been facing some obvious headwinds for a while as the growth of online shopping continues to erode footfall in physical stores. The onset of COVID-19 has exacerbated these headwinds and in many cases, has signalled the death knell for some retail businesses.
If you are a retail business currently fighting to stay afloat, you should continue to obsessively focus on cashflow visibility minimising costs; taking advantage of the various Government support measures where possible; but more importantly continue to assess the relevancy of your business model and how you can adapt to stay relevant and viable. If you'd like to talk to a member of our team about your business, please use the contact form below.
Notes to Editors
Quantuma LLP is a leading business advisory firm which works with businesses at key milestones, delivering partner led solutions to help clients take advantage of opportunities and overcome a range of operational and financial challenges, enabling them to achieve their business objectives and ambitions. The business has 18 offices, including 15 in the UK, two international offices in Cyprus (Nicosia and Paphos) and one in Mauritius.