Julian Pitts, regional managing partner of Begbies Traynor in Yorkshire:
Long after the physical health risks of Covid-19 have passed, the economic risks are still likely to be felt. With employees furloughed and their wages being subsidised, coupled with temporary restrictions on legal action for non-payment of debt, businesses are currently largely protected from the immediate effects of the pandemic.
However uncertain the current situation is, one thing is for sure – it is temporary. Lockdown will eventually be lifted, wage subsidies will come to end, and operating costs will need to be paid. It is this time immediately following the easing of lockdown restrictions which poses the real threat to businesses, testing not only their resilience but also their viability in a post-coronavirus world.
With no clear view of what to expect when lockdown is lifted, nor any knowledge of when this could be, businesses are experiencing unprecedented levels of uncertainty, making planning for the future close to impossible.
Whilst no sector is immune from business interruption, some industries will be more vulnerable than others and will experience a much more protracted return to normal, while it is almost inevitable that others will simply not re-open at all, particularly those already experiencing financial or operational difficulties prior to the pandemic.
The UK’s £72bn hospitality industry is likely to be amongst the last sectors to be allowed to resume trade and this may not happen for some months yet – even then, strict social distancing measures may be required. The late spring and summer are crucial and the loss of this key trading period is something many bars, restaurants and leisure venues will simply be unable to recover from.
The key to business and economic recovery is in harnessing consumer spending, however, it is likely that hesitancy will remain for some time with many remaining reluctant to attend mass gatherings, participate in non-essential travel and social events etc.
Consumer confidence will not return to the same level until there is a widely-available and effective form of treatment, or preferably a vaccine in place. Until this happens there will be an enduring caution to engage socially.
When it comes to re-engaging consumers post-lockdown, some will be nursing a financial hangover, while many more will have adopted vastly altered social habits which may be hard to break.
Perhaps caught out by the sudden drop in income, as well as a realisation that they were able to cope without regular meals out, luxury holidays, or other non-essential indulgences, consumers are likely to re-evaluate what is important to them and where their money is best directed. Discretionary spending has been a huge driver in propelling the economy forward over the last couple of years, however, there is now the very real possibility that spending to the same level may not return for a number of years.
Consumers choosing to adopt a more cautious approach to discretionary spending could be the final nail in the coffin for the already beleaguered high street, while online retailers will also find themselves affected. Motor dealerships, particularly those who have previously been reliant on volume, could also be in for a tough time, while travel looks set for more difficult times ahead.
Not only does the travel industry have to contend with plummeting consumer confidence, there will also be less demand for business related travel as the way many of us now work has been changed forever as a result of this pandemic.
When it comes to working from home, many have adapted to the enforced change in working habits and this could well be something which continues long after the pandemic is over. This is likely to have an effect on commercial landlords as demand for office space declines, and will also decrease footfall in town centres, compounding the misery for businesses reliant on passing trade.
Arguably, our best way of predicting what our post-coronavirus world may look like is to consider what has happened in Wuhan. They are several months ahead of us and there are lessons we can learn when it comes to forecasting our economic recovery.
Cinemas opened to rows of empty seats, while shopping centres are also reporting significantly reduced footfall. Leading retailers have been forced to provide incentives to tempt people back into stores in an effect to buoy consumer morale and stimulate demand. If Wuhan’s recovery can show us anything, it is that patience will be required; just because the country is ready to re-open for business does not mean consumers will be ready to return to their old ways.
Businesses may be braced for a long road to recovery, however, how many businesses will be able to survive while waiting for consumer confidence to return? For some they may find their money runs out long before their patience.