This blog was written on 13 March 2020
In certain life-and-death situations some individuals are reportedly propelled by such a strong will to survive that they literally claw, climb over and trample on all others to get to an exit, or to reach safety. It’s a pretty unedifying image but that is what can happen, apparently, writes FSC’s Managing Director Mark Stretton.
And often in such disaster scenarios, those not in possession of such a compulsive survival instinct succumb to what’s happening around them.
As has become patently clear through the course of this week (and last), many businesses in hospitality and leisure are readying themselves for survival mode: to do whatever it takes to navigate an unprecedented short-term trading period. To claw and to climb their way through the next few weeks, when many groups will need to endure significantly altered sales, ranging from substantially diminished to the bleak prospect of no sales at all.
The many groups we have been speaking have been modelling many different scenarios – 20% revenues down, 50% revenues down and 100% loss of revenues, across all sites for up to eight-to-12 weeks. Multiple sites closed for this length of time, with their fixed costs, is the absolute doomsday scenario (and not what any sane person wants to contemplate) but it is definitely in the conversation of what could happen. And it’s a conversation that we as an industry need to have.
One estimate I heard this week from a senior industry figure is that with sales down 20%, operators could run out of cash by May. Data from Wireless Social revealed a 26% drop in footfall on the high street in most recent days. It underlines how rapidly things have changed. Jonathan Downey of London Union said: “Ten days ago, everything was fine but that has all changed and the damage has been rapid and dramatic.”
Therefore, the question becomes about what to do. Wednesday’s (11 March) Budget was broadly, in the context of the normal world, fine. Not brilliant, not a disaster, and while there was a lot in there for smaller businesses, the needs of bigger groups were largely, frustratingly, ignored or overlooked. Not for the first time. But in the here and now – in the year of coronavirus – the sense was one of overwhelming disappointment, bordering complete and utter bemusement. As one sector CEO said immediately in the wake of Chancellor Rishi Sunak’s speech: “This budget has come two weeks too early, before the Government has grasped the true impact of what is happening and the reality of what is about to happen.”
Oxygen of cash
In the absence of significant government intervention, there is an emerging sense that companies now need to think and act for themselves, for self-preservation. Given the volume of conversations taking place between CEOs and the senior leadership of the industry, it is clear that many are minded to effect a form of collective class action, by ignoring what may be due in the form of VAT and PAYE, business rates, and rents (the next quarter is due 25 March). One sector CEO has already written to all the local authorities in which their group operates to say that they will not be paying rates this month.
With any luck, common sense will prevail and HMRC, landlords and others will recognise the need for support. The principle of Time To Pay (tax holidays in the event of significant revenue drops of 25% or more) is in play and available to operators, and the advice of UKH this week is to speak to HMRC without delay.
Groups will also be engaging with their banking partners, and while the chances of raising new facilities might be remote, there may be the opportunity to restructure current arrangements in light of our new, short-term reality. Suppliers will inevitably need to come to the table in these straitened times, wearing longer payment terms as hotels and hospitality companies sit on bills, and focus on keeping the oxygen of cash within their businesses.
While everyone will be hoping and looking for better news (as soon as possible, please), this is about planning for, and acting on, what is in front of us, right now. As one operator said in a note to me: “We are re-running our cashflows for various scenarios. Each one is catastrophic. The best things we can do now are 1) Preserve cash. Don’t pay anyone 2) Cut costs. Be brutal. 3) Agree payment holidays and postponements with HMRC, landlords and anyone else we can”.
It does seem catastrophic. But the industry’s energy is quickly focusing on fighting the fight and doing whatever it takes in order to be around when stability does return. The Government will have to wake up – there is too much on line, and too many jobs are at stake. As well as focusing on what we can control, we have to make as much noise as possible.
It’s time to scratch and claw.
Mark Stretton is co-founder and managing director of Fleet Street Communications.