Tag: collapse

UK retail giants collapse

By David Meyer for Fortune

Just as the coronavirus pandemic forced big U.S. retail names such as J.C. Penney and Neiman Marcus into bankruptcy, it is now wreaking similar havoc in the U.K.

On Tuesday, the Debenhams department store chain collapsed, possibly spelling the end of a business that has been running for nearly two and a half centuries. The implosion was the indirect result of the collapse, one day previously, of Topshop owner Arcadia Group.

In total, around 25 000 jobs are now at risk.

Cascading collapse
Arcadia Group, whose other properties include high-street staples such as Dorothy Perkins and Miss Selfridge, went into a form of bankruptcy protection on Monday following the reported failure of emergency financing talks.

The fashion empire, run for the last 18 years by the flamboyant and controversial magnate Philip Green, is not laying people off immediately, but 13 000 jobs hang in the balance, particularly if no buyers can be found for its businesses.

“The impact of the Covid-19 pandemic, including the forced closure of our stores for prolonged periods, has severely impacted on trading across all of our brands,” said CEO Ian Grabiner in a statement.

That first domino then pushed over Debenhams, which was also on the brink.

The sportswear retailer JD Sports had been in talks to rescue the venerable chain, which had been looking for a buyer since going into administration in April. But, as Arcadia’s businesses were the biggest concession operators in Debenhams’ department stores, JD Sports took Monday’s news as its exit cue.

“The sale process has not resulted in a deliverable proposal,” Debenhams said in a Tuesday statement.

“Given the current trading environment and the likely prolonged effects of the COVID-19 pandemic, the outlook for a restructured operation is highly uncertain. The administrators have therefore regretfully concluded that they should commence a wind-down of Debenhams UK, whilst continuing to seek offers for all or parts of the business.”

The U.K. is due to leave its second national lockdown period Wednesday, moving instead to a tiered system of regional restrictions that will allow non-essential shops to reopen. Debenhams will reportedly use the “Wild Wednesday” opportunity for a fire-sale of its stock.

Arcadia post-mortem
The difficulties of the department-store model in the age of e-commerce are by now well-known, with COVID-19 in many cases being the straw that broke the camel’s back. Arcadia is also seen as a victim of existing weaknesses, such as its positioning in a time of widening income inequality, as well as the pandemic.

“Most of the brands under Arcadia Group, especially Topshop, sit in the mid-range for price points,” said Melissa Minkow, retail industry lead at digital consultancy CI&T, in an emailed statement.

“We’ve seen mid-priced retailers struggle across the board because of the massive rift between low- and high-income groups. As the middle-income demographic shrinks, so does the success of mid-range retail. On a similar note, Arcadia Group’s brands’ failure to identify with either fast fashion or more quality, high-end messaging means a failure to connect with consumers at a values-based level.”

The news of the collapses prompted words of sympathy from leading politicians.

Alok Sharma, the business secretary, tweeted Monday evening that the Arcadia collapse was “incredibly sad news” and the government “stands ready to support those affected during this difficult period.” The next morning, shadow business secretary Ed Miliband—a former leader of the Labour Party—responded to the combined Arcadia and Debenhams news by decrying “a devastating day for the high street.”

Miliband went on to urge the government to “press Philip Green to do the right thing for his employees’ pensions.” Arcadia’s pension scheme is reportedly £350million ($466 million) in the red.

Green and his wife Tina Green (the actual owner of Arcadia, via her Taveta Investments vehicle) are controversial figures for many reasons.

High on the list is their lavish, Monaco-based lifestyle—they have a £100 million ($134 million) super-yacht moored in the tax haven—but Philip Green has also been accused of of sexual and racial harassment, and a parliamentary report in 2016 described him as the “unacceptable face of capitalism” over his role in the collapse of the BHS retail chain, which he sold the year before for just £1.

 

By S’thembile Cele for News24

Employment and Labour Minister Thulas Nxesi has warned that the state-run Unemployment Insurance Fund could collapse if it is forced to again extend special benefits to workers who’ve lost income as a result of the coronavirus pandemic.

The government initially committed R40 billion from the fund, which is financed using workers’ monthly contributions, to subsidise the special benefits for three months. The relief, which was given to those whose employers couldn’t afford to pay them or who were forced to take leave, was subsequently extended by a further four months until mid-October. Almost R53 billion has been dispensed to more than 4.7 million people so far.

While there have been reports that the UIF has R140 billion available that could be used to further extend the so-called Temporary Employer-Employee Relief Scheme, much of the money is tied up in investments such as bonds, property and equities, and can’t be easily accessed, according to Nxesi. The fund will also need money to pay out regular unemployment claims to more than 1.5 million people in the near future, he said in an interview.

“If we blow this money on this temporary scheme, what will happen to the ordinary beneficiaries who have put their money into it?” he said. “We cannot collapse this fund.”

The Congress of South African Trade Unions earlier this month called for payments to workers in industries that remain adversely affected by virus-related curbs to be extended by a further two months. It noted that the fund has about R60 billion in liquid assets that could be utilized.

“It is far cheaper to invest in saving jobs and companies by extending TERS than to allow thousands of companies to close and retrench millions of workers,” Cosatu said. It conceded that the fund couldn’t provide ongoing support for workers, and called for “a combined package of relief in the form of stimulus, tax relief, and debt relief.”

Cosatu has been at loggerheads with the government over its decision to renege on a three-year pay deal agreed in 2018 by denying civil servants raises this year – a dispute that is now before the courts. The federation has also objected to plans to freeze state workers’ pay for the next three years – a measure the National Treasury has said is necessary to bring burgeoning state debt under control.

Nxesi, whose department oversees the protection of labuor rights, said he is closely monitoring negotiations with the unions, which are handled by the Department of Public Service and Administration.

“My view is that there is a need for a social compact across government to say how are we going to deal with the issue of a salary increment versus the job losses we are seeing,” he said.

The minister also said his department is busy drafting a national employment policy that will aim at dealing with an influx of undocumented foreign nationals, some of whom are exploited by local employers.

“We are looking at the sectors where we can implement quotas for local workers” to be employed as well as safeguard the rights of foreign workers who are legally in the country, he said.

 

By Phillip Inman for The Guardian

The coronavirus could cost the global economy more than $1tn in lost output if it turns into a pandemic, according to a leading economic forecaster.

Oxford Economics warned that the spread of the virus to regions outside Asia would knock 1.3% off global growth this year, the equivalent of $1.1tn in lost income.

The consultancy said its model of the global economy showed the virus was already having a “chilling effect” as factory closures in China spilled over to neighbouring countries and major companies struggled to source components and finished goods from the far east.

Apple told investors earlier this week that it would fail to meet its quarterly revenue target because of the “temporarily constrained” supply of iPhones and a dramatic drop in Chinese spending during the virus crisis.

Carmaker Jaguar Land Rover, adding its voice to a chorus of companies complaining about supply problems, said it could run out of car parts at its British factories by the end of next week if the coronavirus continued to prevent parts arriving from China.

Oxford Economics said it expected China’s GDP growth to fall from 6% last year to 5.4% in 2020 following the spread of the virus so far. But if it spreads more widely in Asia, world GDP would fall by $400bn in 2020, or 0.5%.

If the virus spreads beyond Asia and becomes a global pandemic, world GDP would drop $1.1tn, or 1.3% compared to the current projection. A $1.1tn decline would be the same as losing the entire annual output of Indonesia, the world’s 16th largest economy.

“Our scenarios see world GDP hit as a result of declines in discretionary consumption and travel and tourism, with some knock-on financial market effects and weaker investment,” it said.

Rival consultancy Capital Economics said the situation in China was still developing and it remained unclear how long before the quarantine rules across much of China’s central belt would lead to mass job layoffs and wage cuts becoming more widespread.

It said 85% of larger stock market-listed firms had enough funds to meet their liabilities and wage bills formore than six months without any further revenue.

But thousands of small and medium-sized businesses, which are responsible for half of urban jobs, “may not heed government orders not to shed jobs”.

A survey of 1,000 SMEs conducted by two Chinese universities found that unless conditions improved, one-third of the firms would run out of cash within a month, the consultancy said.

Another survey of 700 companies found that 40% of private firms would run out of cash within three months.

The firm’s Asia analyst, Julian Evans Pritchard, said: “Our best guess is that there is still a window of another week or so during which, if economic activity rebounds, the bulk of employees including at vulnerable SMEs would probably keep their jobs.

“And with large-scale layoffs avoided, consumer spending would bounce back quickly due to pent-up demand, which in turn would help the self-employed and family-run businesses to recoup much of their recent loss of income.

“But with each day that the disruption drags on, the risk of a protracted slump in output rises. If activity is not clearly rebounding by the end of next week, we will revisit our annual growth forecasts.

Oxford Economics said it still expected the impact of the virus to be limited to China and have a significant, but short-term impact, bringing world GDP growth just 0.2% lower than January at 2.3%.

But a pandemic would cause a deeper and more profound shock over the next six months, possibly equal to a $1.1tn loss, followed by a recovery that would make up some of the ground lost earlier in the year.

Will SAA survive this strike?

South African Airways (SAA) says its future hangs in the balance after its workers went on strike to demand higher wages and protest planned job cuts which forced the state-owned carrier to cancel all its flights.

More than 100 international and local flights international flights were cancelled when the unions began their strike on Friday, which saw SAA shedding at least R200-million – plunging its balance sheet into a deeper crisis.

The National Union of Metalworkers of South Africa and the South African Cabin Crew Association embarked on a strike after SAA announced a restructuring process which may affect 944 jobs.

The striking unions are demanding an 8% across-the-board wage increase. Unions also want to have job security for at least three years and the in-sourcing of services like security, cleaning and ground handling.

According to Numsa and SACCA, SAA pilots recently received a 5.9% increase. The two unions said their members were simply demanding increases as well, which should be higher than pilots as they earn less.

SAA has pointed out that the 5.9% salary stems from a 5-year salary agreement after an arbitration process to which the airline is legally bound.

In a meeting with the striking unions, Minister of Public Enterprise Pravin Gordhan has said that no further financial resources can be advanced to cash-strapped flag carrier SAA. In September, the government issued a R5.5bn bailout to cover SAA’s operational costs, but will be unable to help any more.

By Alistair Anderson for BusinessLive

Edcon is a large employer, with 40,000 staff, while its operations also affect numerous suppliers and 100,000 workers indirectly.

Edcon has been battling to save jobs following some poor strategic decisions and mounting competition from newer retailers who have eaten into its market share over the past decade. In the past few weeks, it managed to sign a rental savings deal with a fifth of its landlords so that CEO Grant Pattison could implement a turnaround plan. This plan includes selling or closing underperforming businesses and flattening management structures.

Read more here: https://www.businesslive.co.za/bd/companies/retail-and-consumer/2019-04-14-how-edcons-survival-will-avert-retail-apocalypse/

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