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April 9, 2020

Every major non-food retailer(1) is operating in negative cashflow

  • U.K. non-food sales forecasted to have fallen 70 percent during COVID-19 lockdown

  • Government response has proven a lifeline for major U.K. retailers, but working capital demands are due to intensify from June

  • Even after government support, over half of major non-food U.K. retailers will run out of cash within six months

London – 9 April 2020 - A new report by global professional services firm Alvarez & Marsal (A&M), in partnership with Retail Economics, has found that more than half of the U.K.’s major non-food retailers will deplete their entire working capital should the COVID-19 lockdown continue through the summer.

Large multiple retailers were under significant pressure going into the crisis, driven by a legacy of inflexible lease structures and changing shopping habits(2). Five out of the 34 major non-food retailers analysed already had negative cash flow at the outbreak of the pandemic, a possibility even for large, profitable companies that rely on credit and capital markets to fund investment, growth, and shareholder returns.

Modelling by A&M and Retail Economics shows that a 10 percent reduction in sales would have resulted in over two-thirds of major U.K. retailers falling into negative cash flow. But sales are forecasted to have dropped as much as 70 percent since the lockdown was introduced on 23rd March, tipping every retailer sampled into immediate negative cash flow. 

Government policies have provided significant short-term support. A 12-month business rates holiday and the Job Retention Scheme directly address the majority of operating costs for U.K. retailers. Further concessions including the option to defer VAT, the Coronavirus Business Interruption Loan Scheme, the COVID-19 Corporate Financing Facility and protection from eviction for commercial tenants.

These support measures have proven a lifeline for retailers and as a result, scenario analysis by A&M and Retail Economics suggests that near-term liquidity over an initial three-month lockdown period is manageable for most large retailers.

Should the lockdown persist into the summer, working capital demands will intensify and large parts of the sector will be decimated as swathes of retailers seek additional funding in order to survive.

Richard Fleming, Managing Director and Head of Restructuring Europe, A&M, 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.”

Coronavirus accelerates shift from bricks to clicks

The pandemic has brought about a new set of purchasing behaviours – most notably accelerating the existing shift towards online shopping after all non-essential physical stores were closed. One-third of consumers have switched to purchasing products online that they would have previously (and exclusively) purchased in-store.

A&M and Retail Economics expect this behaviour to broadly continue even into a period of economic recovery as consumers overcome the initial friction of setting up online accounts and begin to form new habits. 

Erin Brookes, Managing Director and Head of Retail, Europe, A&M, said: Managing Director and Head of Retail, Europe, A&M, said: “It has already become clear that the high street will take on a very different form once the pandemic is over. Weaker players will, unfortunately, cease to exist, leaving behind a smaller but more resilient sector comprising operators that acted fast. The survivors will benefit from strong trust in their brands, underpinned by fewer experiential stores that drive customer engagement and multi-channel sales.” 

Recovery timeframe is uncertain

Assumptions concerning the timeframe for recovery are highly debatable and dependent upon the duration and trajectory of the pandemic. Should the rate of infections ease over the coming weeks as hoped, a lifting of restrictions in May should see a recovery in consumer spending start in June/July.

Retail Economics has forecast a hit to the U.K. economy in the region of -15% in the second quarter of 2020 (quarter-on-quarter), before rebounding in the third quarter as the impact of the virus dissipates.

However, even in this optimistic scenario, government measures could fail to curb unemployment which would have a negative impact on major U.K. retailer sales (particularly those focused on non-essential items) throughout 2020 and beyond.

(1) Analysis of the 34 non-food retailers listed on the London Stock Exchange, accounting for over £85 billion worth of sales in 2019/20.

(2) A study by A&M and Retail Economics in October last year estimated that major U.K. retailers occupied 20 percent more space than they need and can financially justify.


Notes to Editors


  • The report - Surviving the cash crunch: The impact of COVID-19 on the U.K. retail industry – was carried out by A&M, in partnership with Retail Economics, an independent consultancy providing economic data, statistics and trends for an outlook on UK retail. The research was carried out in March-April 2020.

Retailers covered in the analysis



 N Brown Group




 Pets at Home 


 Photo Me

 Card Factory 




 Dixons Carphone

 Shoe Zone


 Stanley Gibbons Group

 Fraser Group

 Studio Retail Group 

 French Connection 


 Games Workshop

 Ted Baker 


 Topps Tiles 


 Travis Perkins 

 JD Sports

 United Carpets 

 John Lewis of Hungerford

 Watches of Switzerland

 Kingfisher Group

 WH Smiths

 Moss Bros Group



Assumptions based on 70% decline in sales of non-food retailers


  • Assumed all sales are spread evenly across the year and cash flow modelled by month.
  • We make judgmental adjustments to sales for retailers who are deemed as “essential” and so can continue to operate. We do the same with pure online retailers.

Operating expenses

Cost of goods sold (COGS)

  • Assumed no change to COGS in April 2020 due to commitments to suppliers. Assumed a 33% reduction in May and 70% hereafter to match the decline in sales.

Labour Costs

  • We assume a 50% reduction in labour costs (paid back by the Job Retention Scheme), starting in April. Whilst the scheme in the UK is backdated to 1st March, payment seems to only be expected at the end of April and so we have not accounted for March payback.
  • 50% reduction assumed as each retailer continues to pay a small portion of store staff wages (eg topping up government aid so workers receive a greater proportion of their wages) and all Head Office wages. Store staff costs to be 60-70% of total wages but are on a lower average wage than in Head Office.


  • We do not assume retailers secure rent reductions during the period. We are aware that retailers have been asking landlords for reductions, rent holidays, changes to payment dates etc but we err on the side of caution and assume all rental costs are fixed.

Business rates

  • 100% reduction for period covered



  • We assume no changes to capex in month 1 but a tailing off to depreciation (proxy for maintenance) by month 4 due to commitments.


  • We assume every company makes no dividend payments during the forecast period.


  • Cash and equivalents, overdrafts and Revolving Credit Facilities are taken into account to calculate working capital.


  • No assumptions around breach of banking covenants.
  • However, it is likely that covenant waivers are used to support businesses.
  • We do not account for deferral of VAT payments.
  • No adjustments are made for the impact on margins due to stock clearances.No assumption made for additional borrowing.
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