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UK Retail Faces Another Stress Test During Covid’s Second Wave

Already hard-hit by the first Covid-19 wave, U.K. retailers are bracing for a second round of temporary shutdowns.

Data from Local Data Co. and PWC UK shows that 11,120 chain stores shuttered between January and August, due in large part to the coronavirus pandemic. Over twice as many net stores closed in the year to date relative to the same period last year, they found.

That could change over the next few months.

A week ago the U.K. government outlined its new, three-tiered restrictive measures for England, an attempt to curb another spike in the Covid-19 infection rate. For now, retail, schools and universities would be allowed to stay open, aiding a retail sector buffeted by extensive job cuts and bankruptcies following Covid’s first wave. Overall U.K. traffic levels, while improved from a few months ago, are still down about 30.9 percent year-over-year at the start of October, according to retail activity tracking firm Springboard.

Elsewhere in the U.K., restrictions are in place for pubs and restaurants in Scotland and Wales due to Covid-19 spikes. And starting on Friday at 6 p.m., the Welsh government is mandating a “firebreak” lockdown for 17 days until Nov. 9, temporarily shutting down nonessential retail, leisure and hospitality businesses.

The U.K. isn’t the only European country seeing yet another spike in coronavirus infections. Neighbors France and Spain have tightened up measures, with many French cities on “maximum alert.” And in Belgium, a night-time curfew began on Monday as the country also shut down bars and restaurants for a month. People have been ordered to work from home, where possible. The hope is that by limiting the amount of time people spend together outdoors, spikes in the virus can be curtailed. The Associated Press reported Monday that the number of people that residents can see socially outside their households will be reduced from three to just one all month, under the new lockdown restrictions. Belgium Prime Minister Alexander De Croo described the situation as now “more serious than it was in March when the country implemented a national lockdown,” AP reported.

Another U.K. spike would add more damage to an already fragile retail sector. Retailers such as John Lewis, Harrods, Marks & Spencer and Selfridges have had to lay off thousands of workers, while others, such as Debenhams and Edinburgh Woollen Mill, either have fallen into administration or are close to a filing and are still awaiting their fate.

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Debenhams, which fell into administration in April, and its second in a year, thought it had landed a white knight last month after it was reported that India’s Reliance Retail was snooping around at the bankrupt fashion chain’s assets. That didn’t materialize and administrators are now hosting an auction for chain.

Word surfaced over the weekend that Fraser Group owner, Mike Ashley, best known for his Sports Direct stake, is taking another look at Debenhams, in which he once held a 30 percent stake. His ownership stake got wiped out when lenders took over the ailing chain last year. U.K.’s Sunday Times reported that Ashley has submitted an improved offer for the retailer as part of an administrative auction to save the struggling chain. If administrators deem that a sale of the chain isn’t feasible, then Debenhams would liquidate, erasing more than 12,000 retail jobs.

At Edinburgh Woollen Mill, the company’s notice of its intent to appoint administrator expires on Thursday, although there is a possibility for an extension request. However, owner Philip Day is said to be working at securing an investor that would enable the value-chain Peacock’s and its Bonmarché branch to be acquired out of administration, according to The Sunday Times. If that plan goes through, the news would not be a favorable for Edinburgh, which is expected to liquidate if a buyer cannot be found. Edinburgh shut down 50 stores last week, impacting 600 jobs. Another 100 to 150 locations remain at risk.

Separately, U.K. retailer John Lewis last week outlined a five-year plan to return the company to profitability. The aim is to report 400 million pounds ($519.7 million) in profits by the end of the five-year plan. Part of that change will be to get the online component generating about 60 percent to 70 percent its overall business. John Lewis will invest one billion pounds ($1.30 billion) into its e-commerce platform to reach that goal.