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Are retailers dreading or looking forward to reopening stores when restrictions ease?

Restarting activities will come with a number of challenges for retailers, especially for those who were already struggling before the crisis

French Connection Group - Are retailers dreading or looking forward to reopening stores when restrictions ease?

With European countries slowly allowing businesses to restart and the UK government pencilling in potential reopenings from 1 June, retailers are gearing up for the summer.

Fashion designer French Connection Group PLC (LON:FCCN) said on Tuesday it looks forward to “more normal levels of trade as the situation evolves”, though it is not expected “for some time to come”.

READ: French Connection plans store re-openings, needs cash to survive

Topps Tiles PLC (LON:TPT) was perhaps more upbeat, having already 250 of its 350 stores operational with plans to have the whole estate up and running by the end of June.

Last week, newsagents’ chain WH Smith PLC (LON:SMWH) went as far as announcing a new flagship store at Heathrow Airport as it eyes acquisition opportunities in travel locations.

But reopening stores is likely to be when struggling retailers will feel the pain of the crisis.

“You reopen your stores, you take staff back from furlough, you are working at a sales density that might be 30/40% below what it is normally, then in a couple of weeks your suppliers might want some sort of money upfront,” said John Stevenson, retail analyst at Peel Hunt.

“Retailers will have to liquidate as much stock as they can.”

Heavy discounting

The discount labels will be inevitable to both get rid of months’ worth of stocks sitting in warehouses and have some cash flowing in.

Moreover, with consumer confidence likely to be at record lows, shops will have to lure customers in somehow.

READ: Fashion retailers to see "very painful" summer clearance as stock must go

Footfall in UK high streets, retail parks and shopping centres plunged by over 80% in April when only essential shops were trading, but it is not going to jump back to normal levels anytime soon.

People may feel stressed about going to public places or straining their budgets too much, considering the weak job market.

According to Royal Bank of Canada, sports retailers such as JD Sports Fashion PLC (LON:JD.) and Frasers Group PLC (LON:FRAS) have an added risk in their exposure to youth unemployment.

Problems still in fashion

In particular, fashion designers are going to have a harder time compared to other retailers, as they will have to figure out how customers can touch or try on garments.

“Not only they will have to make shoppers feel safe, but also happy enough to make that purchase. That is an extraordinarily difficult balancing act,” Patrick O'Brien, UK retail research director at GlobalData, told Proactive.

Brands such as Marks and Spencer Group PLC (LON:MKS), Next PLC (LON:NXT) and Joules PLC (LON:JOUL) could ‘overwinter’ summer collections to next year because most items are not high fashion.

But the autumn/winter problems remain: management will have to place in orders for the next season at a time when forecasts are suspended over prolonged uncertain trading.

Social distancing matters

Larger, out of town stores will have an easier time implementing social distancing measures.

“A number of factors, including roomier car parks, make these sites more suitable for social distancing measures,” said Sophie Lund-Yates, analyst at Hargreaves Lansdown.

“[It] could provide retail parks with an unexpected edge over the high streets, as the UK gets used to a new normal.”

READ: Online proposition to play big part in recovery for fashion retailers, analysts say

It will also highlight the difference between brands such as Dunelm Group plc (LON:DNLM), which operates in large stores and does not rely on seasonal trading, and Hotel Chocolat Group PLC (LON:HOTC), serving in much smaller rooms with peaks at Christmas and Easter.

Online proposition will keep playing an important part in a socially distanced world, a trend that will not favour Primark owner Associated British Foods PLC (LON:ABF), as it does not have an e-commerce platform.

Strong balance sheet needed

According to Stevenson, healthier companies are likely to emerge with relatively few bruises from the summer reopenings.

“If we look at the listed companies, the majority of them have got the financial capacity to take in the capital squeeze of the summer,” he commented.

“If you’ve got the working capital, the financial bandwidth for it, that’s fine.”

Quick facts: French Connection Group

Price: 7.8 GBX

LSE:FCCN
Market: LSE
Market Cap: £6.18 m
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