Walpole commentary | What we would like to see from the budget in the context of Coronavirus
As business awaits the first budget since the UK officially left the European Union and the first from new Chancellor, Rishi Sunak, all in the context of the Coronavirus outbreak, we examine some of the challenges facing British luxury businesses and look at what can be done to mitigate some of the short term pain for business.
Walpole wanted to understand more about where, if at all, the impact of Coronavirus on member businesses is being felt and a recent survey member CEOs revealed that beyond exasperation at some of the more scaremongering headlines, luxury businesses are already experiencing substantial challenges.
A quick look at the luxury business model in the UK provides clues as to the where the pressure points are. Walpole’s most recent Economic Impact Study published in partnership with Frontier Economics, characterises a sector which is heavily export oriented with 80% of what it produces being destined for overseas markets; an international customer who purchases luxury goods in their own country, but also when travelling for business or pleasure including making trips abroad specifically to shop and, of Walpole’s 270 member brands, around 60% are SMEs.
The top five impacts of the Coronavirus outbreak on British luxury businesses are:
1. Lower sales and/or footfall in physical retail outlets both domestically and overseas
2. Challenges around travel restrictions both in terms of being able to travel for business and international customers being unable or unwilling to travel
3. Reduction in bookings and room occupancy in hotels and event spaces
4. Supply chain issues including being unable to source component parts or raw materials and delays in receiving goods/materials coming from overseas
5. The cancellation of both events that members are attending such as trade fairs and also events that they have organised and/or are being paid to host
Whilst all members are adhering to medical guidance around stopping the spread of Coronavirus – and several of the above points above are directly related to that – it doesn’t lessen the impact on business. It is particularly challenging for small businesses who have a reduced capacity to absorb additional costs or lower sales, even for comparatively short time frames, than their larger counterparts.
Guidance for British luxury businesses
As a large business, think about supply chains and how to support them. Could your business offer short-term flexible payment terms to luxury SMEs in the supply chain?
Often relationships with suppliers have been built over many years and may involve collaborative research and development of products or materials. In some cases, a supplier could be the only business able to fulfil requirements and if that supplier is an SME, their cash-flow vulnerability puts them at particular risk in high-stress situations such the Coronavirus outbreak.
As an SME, talk to your upstream and downstream suppliers and retailers, ask what could be possible in terms of flexible or staggered payments.
Where possible, don’t stop talking to customers. Slashing budget on advertising and marketing may seem sensible when cash reserves are squeezed, but driving appetite when consumer confidence is low means you’re ready to capitalise on the inevitable uplift when customers return.
There are measures the sector can take to insulate itself against the impact of Coronavirus, but government must also be ready to step in to help business and there are early indications that the Chancellor will be announcing a package of measure to limit the economic impact of the virus.
Walpole’s members would be particularly reassured to see tax relief measures which may include a reduction in, or payment holiday from, business rates and VAT as well as flexible payment of tax including PAYE. Some further detail about the financial support for SMEs as indicated by the Bank of England would also be welcome.
The British luxury is facing Coronavirus off the back of 48% growth in the four years to 2017 and is famously collaborative, supportive and, has weathered many storms as a sector. The UK’s luxury business are also deeply integrated across Europe (regardless of the formal structures of the EU) and frequently unite with arts, cultural and educational institutions for the greater good of the sector and consumers. The personal safety of employees and the wider public is, of course, paramount and beyond that immediate objective, the sector remains committed to welcoming back international visitors in due course and continuing to show the world what Britain has to offer through its luxury goods and services.
Please contact Carly von Speyr with any enquiries.