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The £75,000 cost of reopening a store

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This week, a flurry of high street heavyweights revealed their phased store reopening plans, after those with stores in England were given the green light to get back to business on 15 June with enhanced safety precautions in place.

The plans follow prime minister Boris Johnson’s announcement on 25 May that stores can reopen from 15 June as long as they are “Covid secure”, under the terms of updated government guidance. The date is two weeks later than most retailers had anticipated and applies only to England. Retailers in Scotland, Wales and Northern Ireland are still waiting for guidance from their devolved administrations on when they can resume trading.

Primark has announced plans to reopen all stores in England as soon as government restrictions on non-essential bricks-and-mortar retail are lifted on 15 June. Frasers Group has confirmed that its Sports Direct, Flannels and Jack Wills stores in England will reopen on that same date, and plans to reopen its House of Fraser stores later in that week, once it has sought further guidance on limitations in relation to the size of stores, and food and beverage offerings. Both retailers are awaiting further clarification and local government guidance regarding reopening dates for stores in Northern Ireland, Scotland and Wales.

Next said it would only reopen 25 of its 500 clothing stores in the UK and Ireland on 15 June, while department store chain John Lewis, which has 50 stores, said it would phase its reopening to test the new measures. It will open two stores on 15 June, and a further 11 from 18 June.

Debenhams plans to reopen 90 stores in England on 15 June, and the remaining 30 UK stores will open at a later date. Footwear retailer Kurt Geiger plans to reopen between 10 and 20 stores in England from mid-June, following an official risk assessment. It has more than 70 stores worldwide.

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Next said it would only reopen 25 of its 500 clothing stores in the UK and Ireland on 15 June

While some retailers in England expressed concern at the financial impact of a further two weeks of enforced closures, several welcomed the extra time to properly prepare.

“We’d have preferred earlier in June, but we’ll be ready, and I think the three weeks gives all retailers the time to fully prepare, ensure stores, stockrooms and staff spaces are all compliant,” the director of a worldwide footwear retailer says.

“The government guidelines are also quite demanding, so a bit of extra time may be no bad thing.”

The CEO of one fashion multiple agrees: “I think it’s quite useful that there is a gap from now till 15 June to allow the public to get used to the idea of getting back to normal shopping behaviour again.”

He adds: “It’s important for retailers to open ‘together’, and pushing the date back means more people will feel comfortable reopening by then.

“I think customers need to feel that all the key anchor retailers are open at the same time. Again, I think having some added time between now and 15 June is useful because it allows retailers to talk to each other and share opening plans, so that customers get a sense of ‘critical mass’ rather than a piecemeal approach.”

Fight for survival

However, industry sources have said retailers will “not just spring back to life” from 15 June while demand remains weak.

Helen Dickinson, the British Retail Consortium’s chief executive, says: “With sales expected to remain weak, even as shops begin to reopen, many retailers will still be in a fight for survival.”  

The lockdown has cost non-food shops £1.8bn in lost sales each week as a result of closed stores and low footfall, the BRC estimates. UK footfall suffered a “record decline” in March as a result of the mandatory lockdown, the BRC-ShopperTrak Footfall Monitor showed.

David Beadle, Moody’s vice-president, notes that being Covid secure will also hit trade: “Reopening stores while current social-distancing requirements remain will have operational and financial challenges, for [fashion] retailers in particular.”

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Neil Clifford, CEO of Kurt Geiger, is carrying out a risk assessment before reopening between 10 and 20 stores from mid-June

Footwear retailer Kurt Geiger has drawn up new health and safety procedures to adhere to in its stores, which it predicts will cost an additional £75,000 per store this year to run. Measures include ensuring all stores will have a maximum Covid-secure capacity, allowing one customer per 15 sq m of space (the government guidelines are one customer per 7.5 sq m), and customers will be encouraged to queue outside to ensure this limit is never exceeded.

Screens will be installed at all cash desks to allow transactions to take place safely, only card payments will be accepted and contactless will be strongly encouraged when possible. 

“[The £75,000] figure, which is a very realistic figure, would massively eat into any company’s full-year profits,” the head of wholesale at one high street brand says. “There are lots of challenging times ahead.”

Others feel the figure would be much lower for most retailers, but agreed that any additional costs would be hard for the industry to swallow.

Retail analyst Mark Pilkington says: “Things like screens, radios (to reduce staff movements), contactless payments (with higher card charges) and changing layouts are quite expensive, especially for small retailers. They may not add up to the figure of £75,000 per store, but they are not nothing.” 

He adds: “The real ‘expense’ of the new regime will of course not just be the Covid-protection measures, but the restarting of rents and salary payments that will occur on reopening. If the restrictions and general lack of economic confidence (from high unemployment) mean lower-than-average trading, then the profit squeeze may continue into the medium term. The £14m given to the Health and Safety Executive to support retailers does not sound like very much compared with the scale of the task.”

The director of another footwear retailer is hoping the costs will not reach this level for his business: “I hope we won’t have to spend £75,000 because I think we were going to struggle to make a profit this financial year as it is January to December, but if those were the costs involved, then it would have an even bigger impact than we’ve forecast.

“Of course, there’s going to be additional staffing costs because we’re going to have to manage people coming in and out of the store, and some people are going to be tied up with only that task, but given that and another few expenses on screens, sanitiser, sanitising stations, I can’t see that it’s going to rise to that level.”

The head of retail at one retailer agrees: “In terms of the cost of store reopening, in our view it’s nothing like Kurt Geiger’s figure – nowhere near it. We’re managing and executing a smart plan that will ensure we’re fully compliant and ready at an appropriate cost.”

Several financial advisory experts say it is important not to predict the additional annual cost of running stores post-lockdown at such an early stage. 

Frank Ofonagoro, financial advisory director of advisory firm Quantuma, says: “I think the wisdom of opening back up full operations by mid-June and the resulting impact on the bottom line can only be assessed on a case-by-case basis, as this is dependent on many variables: quality of management’s initial response to the pandemic; degree of digitisation of revenue channel; and level of disruption to supply chain.”

Clare Kennedy, a director in the retail practice at consultancy AlixPartners, agrees: “It’s exceptionally hard to estimate the cost of reconfiguring stores given the experience, in fashion alone, varies so much from brand to brand. For example, requirements in a luxury boutique environment with relatively low traffic and a degree of personal service will differ significantly from those of self-service, high-traffic, fast fashion providers.

“Beyond the baseline costs, which are likely to be PPE [personal protective equipment], provision for hand cleaning, signage and protection at point of sale there will be significant differences in what, and how much, is needed and indeed possible.

“One thing we can say with some certainty though is that reopening for the vast majority of operators will be phased and so retailers of all types will be looking at what they learn from their initial tentative reopenings to ensure they get the very tricky balance between safety and cost correct.”

David Maddison, associate director (retail and leisure) at HSBC, says: “The cost of reopening is an important issue for retailers, with stock location and levels in shops being key in addition to making sure they’re ‘covid secure’.

“The monetary and fiscal policy amendments, schemes and grants introduced since 23 March should help to compensate for some of these additional costs, so long as meaningful sales are generated upon opening.

“Opening stores, however, isn’t a silver bullet. Struggling propositions and operators going into this crisis will likely continue to struggle coming out, so some further failures are likely.”

GlobalData analyst Sofie Willmott agrees that retailers will need to keep their store portfolios thin for quite some time to test the water and prevent driving up unnecessary costs: “Although John Lewis plans to open an additional 11 stores later the same week, it has not yet given opening dates for the remaining 74% of its store estate, highlighting that it is proceeding with caution.

“Other retailers are likely to follow its lead and only open a small number of stores initially, both to gauge the consumer demand and to test their safety procedures. There will be teething problems as retailers find out which measures work and are adhered to by customers, but even if processes are generally successful, we are unlikely to see all shops reopening any time soon, as demand remains subdued.

“Although the government has sanctioned non-essential store openings from mid-June, overall retail capacity will remain below pre-crisis levels for the foreseeable future as social distancing in public spaces becomes the new normal.”

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