British businesses reopened 320 million square feet of operations after lockdown - what next as we enter a critical period?

Almost 60,000 businesses came out of hibernation on Great Britain’s high streets, retail parks, shopping centres and smaller shopping streets during the key reopening periods across England, Scotland and Wales between April and the beginning of July.

After a tumultuous year, 59,126 outlets of independent and chain businesses* have welcomed back consumers indoors. Across Great Britain reopening rates reached 88.6% compared to 82.7% after lockdown 1, analysis conducted by the Local Data Company on behalf of PwC’s Business Restructuring Services (BRS) team reveals. 

The analysis, based on site visits to 68,832 outlets across a six-week period between May 19 and 30 June 2021, tracked businesses’ response to the various roadmap reopening schedules in operation across Great Britain.

In total, the amount of real estate reactivated exceeded more than 320 million square feet, equivalent to 123 times the size of Westfield London, Europe’s largest shopping centre.

Breakdowns also reflect the financial burden businesses were shouldering, as decisions were taken to keep a number of outlets in temporary closure: more than 4,721 outlets of independent and chain businesses remained temporarily closed - alongside 4,535 which had closed and cleared their premises. The real estate impact of the temporary closures totalled more than 48m square feet.

Of the businesses which reopened across the sample, more than half (30,080), hailed from the hair and beauty (11,708), fashion retail (4,222) pub and bar (3,767) charity (2,654) beauty salon (2,126)  home decor (2,230) and automotive (1,764), sport and health club (1,609) sectors. Other sectors covered included, employment agencies, DIY companies, job centres and banks. 

The data reveals the efforts made by businesses to start maximising revenues as restrictions were lifted between April and July, the period directly before furlough support began to taper off. 

However, the reopenings have revealed the extent to which businesses have been exposed to financial demands, with 20,559 County Court Judgments filed against businesses for more than £93.5 million of claims between July and the end of November 2021. The CCJ claims were filed as restrictions on winding-up petitions remained in place. 

Zelf Hussain, retail restructuring partner at PwC, said: 

“It’s great that so many businesses have fully opened their doors as we now enter this critical period - which may still be influenced by emerging Covid-19 variants. Those who are still temporarily closed will simply have decided the scales were weighted too heavily towards costs versus potential revenues - an incredibly difficult decision given the impact of the pandemic. 

“For all those businesses looking to recover and grow, this period leading up to Christmas is vital. They will be facing some strong headwinds with potential shortages of stock driven by import logjams and the shortage of people available to work in stores.  

“Unfortunately, a combination of these factors will mean that some businesses will inevitably see more winding up petitions as creditor powers fully return and they must be ready for the impact - which includes bank accounts potentially being frozen.” 

Zena Gridley, operational restructuring partner at PwC said, 

“Logistics, stock, and staffing arrangements are still being significantly tested, and are likely to be further stretched either side of the festive season. We’re seeing high levels of activity among clients needing to review their cost bases and strip out any activity in support functions or services not directly linked to customers which isn’t adding value. 

“As fuel, driver and supply chain issues continue to swirl,  ‘empty ’- or ‘partially empty - legs’ where trailers carry no, or significantly reduced stock means companies still incur costs such as fuel, driver wages and wear and tear on vehicles, denting vital margins. Anecdotally between 10-40% of routes are either empty or partially empty and this issue will be front and centre during a period of driver shortages.”

CCJs and winding up petitions since July 2021

From the start of July, the boost from businesses being able to fully reopen also brought with it the return of rents, tax and payroll liabilities. From this point there was a significant rise in the number of County Court Judgements as creditors’ ability to lodge winding up petitions remained curtailed.  

The BRS Data and Analytics unit tracked 20,559 County Court Judgments filed against businesses for more than £93.5 million of claims between July and the end of November 2021 - recording four of the five highest monthly CCJ totals since November 2019. Hospitality & Leisure, and Retail firms were among the most exposed sectors to CCJs across the five-month period alongside Engineering & Construction and Business Services.. 

There were only 288 winding up petitions between July and November 2021. However, Hospitality, Retail and a range of other sectors are preparing for the return of Covid-19 related rental petitions on 31 March 2022. 

Breakdowns revealed a 23% increase in winding up petitions between September and October 2021 (56 vs 69) as the furlough scheme ended and restrictions on winding up petitions were relaxed, with a further 60 being recorded in November 2021. Encouragingly, last month’s tally remained almost 70% lower than November 2019 (190 petitions) and a fraction of the 480 lodged in February 2020 pre-lockdown. 

Mark Addley, real estate restructuring partner at PwC, said: 

“From a restructuring viewpoint, businesses will be taking critical decisions on refinancing, reviewing or repurposing assets. Winding-up orders remain off the table until the end of March 2022 for commercial rental liabilities built up during the pandemic, as does landlords’ ability to evict tenants.**  Landlords are willing to reach a compromise, but they are also under severe financial pressure themselves. It’s never been more vital that landlords and occupiers negotiate early.”   

Resourcing and supply chain issues

The economic boost of reopenings was somewhat dampened at the end of the summer when some businesses had to close outlets temporarily due to worker, and supply chain issues, which in turn heavily impacted their ability to service their working capital demands - the operating costs needing to be covered while waiting for revenues to flow in. 

As these issues have become even more acute in recent weeks, PwC’s Working Capital analysis has found that consumer- facing UK businesses were already holding stock on shelves for an average of 35 days before turning it into sales at the end of June 2021. Recent market conditions would suggest that those working capital demands will have increased significantly, stretching companies’ finances and increasing the potential for creditor action. 

Claire Fox, retail operational restructuring partner at PwC, added: 

“Trading costs from rents to employees to utilities - including energy bills - are still mounting up. For the bigger players, decisions to keep core, high cost but high revenue flagship stores in city centres - or even the lesser performing outlets where revenues aren’t as strong - are under strain as the festive season approaches. 

“The drain on cash and liquidity is likely to increase as support schemes, tax and rent deferral arrangements taper off. Maintaining the financial momentum needed to address inventory costs and run day-to-day operations while waiting for revenues to flow - remains a key objective for survival.”  

Ends 

CCJ and Winding up petitions- further info

July - November 2021 activity generated almost 30% of the £311.9m of total CCJ claims  (63,022 in total) since November 2019.The South-East, London, North-West and the Midlands regions were hardest hit. An average of 81% of the debt claimed between July and November remained unsatisfied (not fully paid).  

From a high of 480 in February 2020 before protections against winding up petitions came into force, the court submissions significantly decreased to 84 by May 2020 and fell to a low of 44 by March 2021.  

*The analysis was prepared by the Local Data Company on behalf of PwC. 68,382 independent and multiple consumer-facing businesses were tracked as part of the study which focused on reopening and temporary closure trends across various roadmap timelines in operation throughout Great Britain.  

** Restrictions on winding-up petitions eased significantly on 1 October 2021 - after which point it is not necessary to consider the financial effect of Covid-19 on a company. Instead, from 1 October 2021 until 31 March 2022, in order to present a petition, a creditor needs to meet four conditions:

• Condition A: the debt owed; (i) is for a liquidated amount; (ii) has fallen due for payment; and (iii) is not rent or any other payments (e.g. service charges) that are due under a relevant business tenancy;

• Condition B: the petitioning creditor has delivered a written notice to the company containing, among other things, a statement: (i) that the creditor is seeking the company’s proposal for the payment of the debt; and (ii) that if no satisfactory proposal is made within 21 days of the date of delivery of the notice then the creditor intends to petition for the company’s winding-up (a Condition B Notice);

• Condition C: 21 days have passed since Condition B Notice was delivered and the company has not made a satisfactory proposal for the payment of the debt; and

• Condition D: the debt owed to the petitioning creditor (or a group of petitioning creditors provided they have all met Conditions A to C) is at least £10,000.

A moratorium on landlords’  forfeiture and eviction powers  Commercial Rent Arrears Recovery is also active until 25 March 2022  The Government has released a blueprint to tackle accrued rent arrears for businesses who were forced to close during the pandemic.  The proposed legislation will ringfence rent debt accrued during the pandemic by businesses affected by enforced closures; and set out a process of binding arbitration to be undertaken between landlords and tenants. The binding arbitration is to be imposed as a last resort, where negotiations between the landlord and tenant haven’t reached a resolution.

*** Multiples are businesses with more than 5 outlets. 

Ends