We’ve all got the lockdown blues right about now, our usual activities severely curtailed and some seem to think it’s little more than a holiday at home. But we don’t think things will be normal again for a while.
For one thing, we’ve already seen Brighthouse close down, and we’ve not even gotten to the end of the first month of lockdown.
Retail Carnage
We think this is just the start.
Let’s try to explain what’s going to happen and when as well as perhaps why as we all know many retailers. As high street and many online electrical retailers (among others) are living on a knife-edge of profitability.
Our super simple graphic tries to explain
What were trying to show here, in blue is the incoming revenue from more or less any business then in red the outgoing. In a typical year, you’ll often see retailers et all fail about this time as they have the big burst of sales from the festive season and January then straight into a quiet, short month of February.
That leaves the orange bit; the additional carried over debts to be found when things slow down to pay off what was being made when things were banging along nicely.
Of course the terms the business is on here matters a lot as you can have 30, 60 or even 90 day terms for some but, the basic principle remains the same when you get to March when the lockdown started, sales drop off a cliff but, the debts are still carried forward.
In short, massive debts to pay, no income stream to generate cashflow to pay those debts.
The ability to pay those debts are calculated based on normal trading. What we have now is not normal trading at all.
So, companies will go under. We’d think that is as inevitable as the sun will continue rising and setting.
Which ones and just how big the carnage will be, we don’t know.
What happens beyond the end of June, we can’t say. That depends on when the lockdown comes to an end and how things recover as, even when all this is over, there is no guarantee that things will be back to business as usual. In fact, we instead think it won’t be.
Manufacturers
Most now are huge. Small regional manufacturers are largely a thing of the past now, so it’s not likely that many will go pop. We don’t think but stranger things.
At least in the appliance industry.
But jobs and plants, that’s a whole other thing.
If you wanted to bury bad news like, oh you know, shut down a bunch of stores (cough, Carphone Warehouse), get rid of a bunch of employees or close a plant or two, now’s the time to do it.
With all that’s going on, it’s probably not even going to raise an eyebrow and likely to be forgotten in less than one news cycle.
But despite the cynical view, many manufacturers may well be faced with the same crippling cashflow issues as above for retailers. In that, they have bills to pay and no money coming in to pay them with.
On top of this, manufacturers may well not be able to move products due to restrictions and, even if they could, retailers won’t want them as they can’t open up to sell them.
It is one gigantic mess.
And one that the implications are as yet mostly unknown.
Service
We will often say that service is the poor guy in all this and that holds as we know factually that many service businesses are hand to mouth.
That means they will run out of cash, fast.
We expect many within a few weeks will be struggling to keep a light on, even to come back when all this dies down.
We can see two paths open to some service companies:
- Buckle up and ride it out if you can
- Go bust and restart when things return to “normal”
Neither are especially attractive, but there aren’t a lot of options here.
If you can hold on, great but if not we don’t expect you will be alone in having to fold an existing business to restart when you can.
Meanwhile, for those that run service networks, if they even survive this with their revenues completely cut off, may well not have a network to come back with.
Many of these also aren’t exactly the most profitable, and they too run the risk of failing.
Funding
Governments all over the world are trying to stop this descending into chaos and businesses collapsing all over the place, which would mean, at best recession and at worst depression.
There is funding from the UK Government in grants if you pay rates and wages and loans and so on but as our little graphic demonstrates (kinda, we know) even that may not be enough for many.
The question is, how many will it save?
Honestly, we don’t know. We know that some will collapse and there may well be some large and surprising casualties of all this let alone the smaller businesses and we don’t have a lot of good news to report here.
