We have all evolved a personal reaction to lockdown, and those that have survived may benefit from considering ways of managing their business post-lockdown.
One approach may be to use the answers to three key questions to evolve a personal strategy for managing what comes next.
- Where is lockdown headed?
- How will we get there?
- How long will it take to get there?
Where is lockdown headed?
The negative impact of lockdown on the economy has been well documented elsewhere. Specific sectors that impact suppliers include hospitality, events, travel (tourism & commuting), and ‘non-essential retail’. However, other factors include:
- Home-working: Both employees and employers will benefit from a significant percentage of workers choosing to work from home. By way of knock-on, hospitality, retail, and services around city centre office blocks will suffer from radically reduced footfall as office blocks adjust to a new mix of office and home-working, of the order of at least 25% working at home. Some office blocks will have to be re-purposed as domestic accommodation, and this will benefit local hospitality services to some extent, but perhaps too late for some…
- Travel: Commuting & tourism, airline, sea, train/bus, taxis/cars will all suffer from reduced traffic, internal efficiencies arising from social distancing, and resulting over-capacity, and of necessity, will incorporate cut-to-fit policies. In terms of minimum, think 25% reductions in effective traffic.
- Accelerated demise of companies already in trouble, despite the transfusions/life support coming from taxpayers via payment ‘holidays’, including furloughs/redundancies, rental/rates, bank interest, and VAT breaks.
All in all, monumental change at the expense of the taxpayer. Those still employed will emerge as super-savvy consumers, unwilling to settle for anything less than demonstrable value for money. Whilst they may have been willing to accept total lockdown based upon faith rather than fact, it is unlikely that they will be as tolerant in their day-to-day commercial dealings using their own money.
For the balance of demand, retailers and their suppliers will be reliant upon consumers overcome with mixed emotions of confusion, worry and fear, unwilling or unable to spend.
The Government will have to reconcile the need to increase taxes with consumers’ already reduced spending power, knowing that each increment will cause an equivalent reduction in demand, at least.
In other words, we are headed for a radical re-set of the economy, a significant reduction in the cost of labour based on four million unemployed, minimum. This will be coupled with a lowering of disposable income/spending power, austerity and ultimately less demand.
How will we get there?
The taxpayer expense required to cover furlough and resulting redundancies/unemployment burdens, financial ‘holidays’ such as rent, business rates, bank interest, corporation tax, VAT, funding public services, providing allowances including furlough-pay, ‘eat out to help out’, protective kits like masks, and medical help. These will all have to be recovered from tax revenue in an environment of vastly reduced demand and resulting falls in tax income arising from lockdown. The resulting gap will have to be filled. This means more tax, less public services, and less support for companies. In terms of trade reaction post-lockdown, it is likely that retail channels will respond as follows:
- Mults: Having made a cash-haul during lockdown by being able sell at normal shelf prices i.e. little or no promotions, they will have an opportunity to halt discounters in a prolonged price war/EDLP and build shopper lock-in (i.e. Clubcard extras, more private label to differentiate).
- Discounters: Business as usual, plus shopper lock-in via the Lidl app, Aldi £1.3bn investment, online, overtaking Morrisons’ market share.
- Amazon/Online: Bonanza, driving on all fronts, more of the same, optimising Prime Day.
- Independent convenience: A focus on renewed local relationships, intensify ‘localness’ helped by wholesalers on availability.
All traditional retailers will cut-to-fit, as online grows at their expense in terms of demand.
How long will it take to get there?
Given the damage already incurred, some of which is terminal, and the need to work lockdown out of the government’s repertoire of problem solvers, it will take at least five years to repair the economy, stabilise tax collection and expenditure, rebalance the retailer mix, allow the settling down of online to ‘normal’ growth levels, and give sufficient time for the repurposing of supply chains.
It also requires a steady-state of home-working vs. office-based output, and re-purposing of city centre office blocks. If in any doubt, think hospitality, travel and entertainment/events, and their knock-on economic impacts, for starters. It will then take a further five years to re-establish ‘safe’/secure rates of growth under the threat of annual surges of coronavirus…
However, it has to be kept in mind that in a degree of change of this magnitude, there have to be opportunities for realists that are prepared to think for themselves within practical time-frames.
