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Retailers' working capital could 'deplete within six months'

Half of the UK’s major non-food retailers will deplete their entire working capital within six months if the current lockdown period continues through the summer a new report has found. 

In the report, Surviving the cash crunch: The impact of Covid-19 on the U.K. retail industry, carried out by professional services firm Alvarez & Marsal (A&M), in partnership with Retail Economics, the six-month period is measured from 23 March. 

The report found that five out of the 34 major non-food retailers analysed already had negative cash flow at the outbreak of the pandemic: a possibility even for large, profitable companies that rely on credit and capital markets to fund investment, growth, and shareholder returns. 

This was a result of pressures facing retailers going into the crisis, including a legacy of inflexible lease structures and changing shopping habits. 

The report also found that just a 10% reduction in sales would have resulted in more than two-thirds of large UK retailers falling into negative cashflow. However, sales are believed to have dropped as much as 70% since the lockdown was introduced on 23 March, tipping every retailer sampled into immediate negative cashflow. 

Government support measures have included a 12-month business rates holiday, VAT deferral, the coronavirus Business Interruption Loan Scheme, the Covid-19 Corporate Financing Facility and protection from eviction for commercial tenants. As a result, scenario analysis by A&M and Retail Economics suggests that near-term liquidity over an initial three-month lockdown period is manageable for most large retailers.

Fashion retailers covered in the analysis included Asos, N Brown Group, Next, Mulberry, Boohoo, Quiz, Shoe Zone, Burberry, Ted Baker, Superdry, JD Sports and Moss Bros, among others. 

Richard Fleming, managing director and head of restructuring Europe at A&M, said: “Government measures have spared the major retail brands from immediate collapse. You could characterise this three-month period as a payment holiday. But prudent retailers are still pivoting their focus towards what cashflow they have and can expect in future. This is the essential fact base upon which turnarounds can be built.

“The next few weeks will be critical. Retailers need to ask themselves the tough questions and take steps to address underlying operational issues while they still have the chance.” 



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