Market participants in the week ahead will receive further signs of COVID-19’s impact on UK retail sales growth, as a myriad of other daunting challenges continue to hammer the industry.

The fallout from the coronavirus pandemic on British retailers adds to a growing list of material events that have had crushing effects on the sector, including a trio of recent, hard-hitting storms, as well as high business rates and preparations for Brexit.

(Click on image to enlarge)

According to the Office for National Statistics’ (ONS) latest Business Impact of Coronavirus (COVID-19) Survey (BICS), 29% of the 4,598 businesses that responded cited the need to cut staff in the short-term, while only 40% reported they were confident they could continue operating.

Among other measures to alleviate pressure on the industry, the UK government rolled-out a retail discount, extending 100% off business rates for bills in the 2020 -2021 tax year for eligible companies, including shops, restaurants, and pubs, as well as movie theaters, concert venues, hotels, gyms, and casinos, among others.

Moreover, the Bank of England (BoE) in late March maintained its policy rate of a record low 0.1%, admitting that its challenge over recent weeks has been to respond to the severe economic and financial disruption caused by the spread of COVID-19.

The central bank’s Monetary Policy Committee (MPC) noted that the “spread of the disease and the measures that are likely to be needed to contain it have evolved significantly.

“The economic consequences of these developments are becoming more apparent and a very sharp reduction in activity is likely.”

The BoE added that given “the severity of that disruption, there is a risk of longer-term damage to the economy, especially if there are business failures on a large scale or significant increases in unemployment.”

The central bank has also committed to a new round of asset purchases worth roughly £200bn – a one-off stimulus that rivals its response during the financial crisis of 2008-2009.

To date, more than 1.5m cases of the novel coronavirus have been identified in 184 countries and regions, with around 4.1% of that total having hit the UK and 28.8% in the U.S., while nearly 90k people have suffered fatalities globally.

Prognosis: Dire

Meanwhile, recovery in the beleaguered UK service sector looks grim.

The IHS Markit/CIPS composite flash PMI for March, for example, fell to a historic low of 37.1 as businesses reported widespread COVID-19 impacts – surpassing the prior low of 38.1 set in November 2008.

The PMI also saw future business sentiment drop to a record low, while employment fell at the steepest rate in 11 years, and a significant collapse in demand riled the service sector.

(Click on image to enlarge)

IHS Markit chief business economist Chris Williamson noted that with “additional measures to contain the spread of the virus set to further paralyze large parts of the economy in coming months, a recession of a scale we have not seen in modern history is looking increasingly likely.”

The dismal conditions have helped to decimate the value of several major UK retailers.

Year-to-date in 2020, American depositary receipts (ADRs) of luxury fashion house Burberry Group (OTCMKTS: BURBY), JD Sports Fashion (OTCMKTS: JDDSF), and clothing, footwear, and home products giant Next (OTCMKTS: NXGPY), for example, have plunged 37.6%, 43.2%, and 46.2%, respectively.

(Click on image to enlarge)

In mid-March, Burberry stated that its comparable retail store sales had plummeted between -40% and -50% over a six-week period.

In total, around 40% of the company’s directly operated stores have shut their gates globally, with additional closures expected.

The firm further noted that following “the significant escalation of governmental trading, travel and social restrictions in recent days and the inevitable impact this will have on-demand, we are expecting our comparable retail store sales in the final weeks of the year to be within the range of -70% to -80%.”

To help assuage investor concerns, Burberry said it has “significant financial headroom,” including liquidity of £0.9bn from £0.6bn cash balances (before lease obligations) and a £0.3bn revolving credit facility.

In terms of leverage, at September 2019, the company held £0.4bn worth of net debt, including lease liabilities, with a leverage ratio within its management’s targeted range of 0.5x to 1.0x.

High Demand Goods Prop-up Grocers: For Now

Supermarket and online grocer giant Ocado (OTCMKTS: OCDGF), which has seen its ADR increase almost 0.75% year-to-date in 2020, seems somewhat better positioned for the pandemic, as consumers stock up on essential items such as long-life food, health, household, and hygiene products.

In fact, the ONS observed that between the weeks ending March 29 and April 5, the prices of these high-demand items increased by an average of 1.5%.

Still, COVID-19 is likely to dent grocery stores in the coming months.

Paul Martin, KPMG’s UK Head of Retail, warned that although the edging up of prices will have contributed to the growth of some grocers, “in the short-term, any potential supply chain disruption caused by COVID-19 will be felt acutely” and further developments “will have to be watched closely.”

(Click on image to enlarge)

Investors will likely be paying close attention to the BRC’s Retail Sales Monitor for March, which is set for release on Wednesday, April 15, as well as signs of any further impairments to the UK retail sector as effects from the deadly coronavirus continue to take a toll.

The BRC’s Retail Sales Monitor for February showed that overall sales growth fell 0.4% on a like-for-like basis.

In the meantime, select the Event Calendar option in the IBKR Trader Workstation for a full list of the U.S. and global corporate events and earnings, dividend schedules, economic data, IPOs and more.