NEWS

Tuesday 23rd June – Latest toy industry reaction to coronavirus outbreak

Published on: 23rd June 2020

Today, there’s news from Mothercare and more measures affecting retailers in the UK.

Mothercare is reported to be in talks with prospective debt providers. The company is relocating from its Watford head office to a “smaller and more cost effective” location in an attempt to save £1m and will also sub-let part of its main warehouse to a third party, reducing costs by a further £220k. After closing all UK stores earlier this year, the company says it has completed its transition to focusing on brand management and design. Around two-thirds of its partners’ stores have now reopened in 40 international territories.

Interim chief executive Glyn Hughes will step down at the end of July, having held the role since January. The business will be led by the chief operating office and chief financial officer under chairman Clive Whiley, until a new CEO is in place.

Clive commented: “We are finalising our arrangements with both our existing franchise partners and Boots as our new UK franchise partner and will make further announcements in due course. Our discussions with various other financing partners also continue constructively. Whilst we have not been immune to temporary store closures in almost all of our territories, I am pleased that we are seeing the reopening of our partners’ stores. At the same time, we continue to take action to reduce our cost base and address legacy issues, helping with our return to being a profitable and sustainable business.”

The Sunday Times has reported that chancellor Rishi Sunak is considering cutting the rate of VAT in order to stimulate the economy. It is believed that there could be a reduction in the headline rate of VAT from 20% to 17% and an increase in the number of products attracting a zero rating. Any reduction in the headline rate is likely to be for a limited time.

Economists are divided over the effectiveness of such a measure, feeling that the proposed cut may be too slight to have any significant effect on consumer spending. Retailers that are already offering discounts have not seen a substantial increase in sales, suggesting that pricing is not a main driver of increasing consumer confidence following the easing of lockdown restrictions. It is also feared that businesses would face increased administrative costs.

Retailers have also raised concerns that a temporary VAT cut may result in extra cash-handling that could increase the spread of coronavirus. The retail sector has been working hard to reduce cash payments, amid concerns that Covid-19 can be transferred on coins and banknotes, with shoppers urged to use contactless payments. Although the number of cash payments fell by 15% last year, according to industry body UK Finance, some shoppers still prefer to use cash and coins.

A temporary ban on the eviction of high street businesses for non-payment of rent has been extended to the end of September. Until then, landlords are prohibited from sending tenants statutory demands, a formal request for payment or winding-up petitions.

The government has published a code of practice to assist negotiations between landlords and tenants, as both sides remain under ongoing financial pressure. The move is designed to save companies from eviction over the summer and the government hopes that the new code will help unlock conversations on rent and future payments.

The code, which is voluntary, states that tenants should “continue to pay their rent in full if they are in a position to do so” and that others should “pay what they can”. Suggested options for landlords  include offering rent holidays or switching to a monthly rather than quarterly payment schedule, using rent deposits or passing on any reductions in service charges to tenants, although some property owners claim that tenants are exploiting the emergency measures. Helen Dickinson, chief executive of the British Retail Consortium, commented: “Without further action, both retailers and landlords remain in a precarious situation that could lead to substantial numbers of redundancies as soon as tenant protections expire.”

Plans to relax Sunday trading laws are reported to have been dropped after at least 50 Tory MPs threatened to join Labour and vote against the measures, although the government has suggested that it will keep the policy area under review.

MPs have warned that, rather than stimulating economic growth and revitalising high streets, local shops and high streets would suffer, as trade would be displaced to large out of town retail parks and supermarkets. They also highlighted that Sunday represents a time when families and communities can spend time together, which is much needed by retail workers on the Covid-19 frontline.

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