Market Comment May 2019 – The COVID-19 Special Edition

Please click or see below for Market Comment May 2019 – The COVID-19 Special Edition.

As this is written nearly 3 weeks into lockdown the deal making sector seems to have almost disappeared into oblivion but it is worse than that. The streets are deserted. No one can get a slot for delivery shopping. Amazon deliveries are delayed. Major events are cancelled, some of which may never, ever run again and some UK police force’s peccadillo’s are threatening to turn the United Kingdom into a police state.

Where live wires and feeds would once stream anywhere between 200 and 1,000 deals a day worldwide into the office, this has shrunk dramatically. The office is quiet and the author is having his first lie-in since 1997!

The government has come up with some schemes to help furloughing employees is one, many say it doesn’t go far enough and doesn’t help the smallest businesses. The help for the self-employed clearly is not good enough and many have been complaining that they will not survive. A headline quote is that “a third of businesses do not have enough cash to last more than 8 weeks.”. This clearly worrying so let us deal with this first.

It has long been argued that within the smaller business, contingency, continuity and emergency planning has never been good enough. “It will never happen to me – so I don’t need to worry about it!” Wrong, This crisis shows that this statement has never been more incorrect! The next argument is that not enough businesses have plans for succession or exit. This may prove itself to be more true in the coming weeks and months when we have more detail available to make an assessment. For example, do we yet know how many business owners have died yet? Or, do we know how many businesses have been forced to close because of the death of an owner or director owing to COVID-19?

So what will the smart small business owner about town have to do next? They will certainly have to be cogniscent of external forces and force majeure and their impact on their business, they will also need to make and have plans for “what to do next” in case a similar or repeat event happens. All small businesses will need to review these plans regularly and commit to making changes where they are needed. At least once every six months is recommended. Succession and exit planning is another area that needs attention. A large number of businesses have come onto the market during lockdown where the owner “needs to sell, today”. Clearly this cannot happen, he business transfer protocols and processes do not allow for such a quick turnaround. So businesses need to start to make further judgement calls in advance and not consider leaving things until the last minute. To make a comparison during “normal” season The Trade House would receive 3-5 enquiries for emergency distress sales in a month. During the COVID-19 lockdown the office has received at the time of writing between 70 and 80 serious enquiries of this nature.

This is a substantial hike and links nicely back to “it will never happen to me”. It can seriously be argued that of these business owners had more foresight that they would be in a much better Position today and in normal times in a much healthier position too. Trying to prescribe precise business strategy in a broad brush article such as this is dangerous but it shows that businesses have some hard thinking to do.

Between this and the attempts to assist the self-employed not going far enough it is becoming clear that the economy will hit a recessional period fast. So what will this mean. High unemployment is looking to be almost certain as is an increase in the number of business closures. Talking to sever business owners a theme is becoming clear. The lockdown needs to end in order for them to succeed in their businesses and if anything that business owners are annoyed that the lockdown hadn’t started sooner and ended sooner.

The outlook for traditional retail and retail property is bleak too. This situation has shown a sharp rise in home and online shopping to the point where delivery companies are struggling to cope with the demand for delivery slots from the consumer. It has got to the stage where the disabled and vulnerable are unable to get shopping and essentials delivered. Debenhams, once a stalwart of both the high street and shopping malls, has reached the point of administration with as many as 21,000 jobs in the UK and Ireland at risk according to various sources. The retail sectors pain’s have been growing year on year since the last recession and credit crunch in 2008 that one is constantly left wondering and speculating  as to what will happen next and what will become of  all the excess retail space that is available. On one point this publication has long argued that the retail sector needs to make more of an experience out of visiting the store and that piling it high and selling it cheap has long has its day.

The next point is that retail space is not easily convertible into other uses such as office, industrial or residential. The councils must take some of the some of the blame here. It is after in their interests to have these spaces occupied in some or another. So, they need to be inventive, many councils do not have a good track record for being inventive or innovative this will probably mean that where possible these buildings will be sold and more than likely a divisive planning application will be turned in which in turn take up even more time and resources of the councils to resolve. It is suspected that this also increase strain on the planning appeals service too. The author believes that councils in general are 3-4 years behind the curve in dealing with the demise of retails from towns and cities in view of the high number of retail sector liquidations and administrations since 2015.

Towards the end of writing this article The Trade House heard news that another “traditional” large high street retailer is at risk of liquidation within weeks. With well over 100,000 jobs at risk including the supply chain, this is not good news.

So what of the lockdown? Some people are saying it will end by the end of April 2020, some are saying the end of May 2020 and some are more pessimistic at the of June 2020. Will this mean that everything will go back normal and how long will it take? The answer here is that no-one knows. There is a sense that there will be some wholesale change immediately afterwards. The pub sector can certainly expect a very, very busy month post lockdown, but whether or not this can be sustained given other economic factors remains to be seen.

In conclusion owing to Covid-19 small businesses and deal making are in for a rough ride over the next year and possibly longer. The outlook is grim and unless more happens at every level the position could be a lot worse.

Market Comment is a feature of The Trade house Magazine. The May 2020 edition is below.

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