More than half of the UK’s major non-food retailers will run out of cash if the government’s coronavirus lockdown continues into the summer, as research found that sales have plunged 70 per cent.
A new report by restructuring firm Alvarez & Marsal (A&M) and Retail Economics found that the UK’s biggest retailers will deplete their entire working capital if they are forced to stay closed for six months.
All major retailers are operating in negative cash flow, the report found, after the coronavirus dive in sales exacerbated an already precarious situation on the UK high street.
Five out of the 34 companies analysed for the study had negative cash flow at the outset of the pandemic.
Modelling showed that a 10 per cent reduction in sales would have resulted in more than two-thirds of major UK retail players falling into negative cash flow.
However sales have dropped as much as 70 per cent after the lockdown was introduced on 23 March, forcing all non-essential UK retailers, such as clothing and electronics stores, to close indefinitely.
Government support means most major retailers will be able to survive an initial three months, but if the lockdown continues into the summer large parts of the sector could be “decimated as swathes of retailers seek additional funding in order to survive”.
Richard Fleming, A&M managing director, said: “Government measures have spared the major retail brands from immediate collapse.
“You could characterise this three-month period as a payment holiday. But prudent retailers are still pivoting their focus towards what cashflow they have and can expect in future.
“This is the essential fact base upon which turnarounds can be built.
“The next few weeks will be critical. Retailers need to ask themselves the tough questions and take steps to address underlying operational issues while they still have the chance.”