The UK economy can’t catch a break.
Britain is already facing its steepest recession in 300 years, and expected to suffer the worst coronavirus-induced slump of any major economy this year. It’s also risking a rupture with its single biggest trading partner, the European Union, if a new trade deal is not agreed soon.
Tens of thousands of jobs have already gone in energy, banking, aviation and aerospace and now many more are at risk after Intu (INTU), one of the United Kingdom’s largest shopping mall owners, said Friday that it is entering administration. The company has debts of £4.5 billion ($5.6 billion) and was unable to agree repayment holidays with its creditors. Its shares, which have been on a downward trajectory for several years, plunged 54% on Friday before they were suspended.
Intu owns 17 UK shopping centers and two in Spain, accommodating 800 brands and 400 million shopper visits a year, according to the company. These centers will remain open during the insolvency process and individual retailers will have to enter transitional agreements with the administrators, KPMG.
But UK retailers are themselves suffering from a collapse in sales and many have been unable to pay rent for the upcoming quarter, raising questions as to how many of the shopping centers can realistically afford to remain open.
Just 14% of the rent owed by UK retailers for the third quarter of this year was paid on June 24, the due date, according to property management platform Re-Leased.
“We expect there will be more pressure to come,” Re-Leased CEO Tom Wallace said in a statement Friday. “The temporary ban on evictions for non-payment of rent and the government furlough scheme is providing a lifeline to many tenants at the moment, but those measures will not last forever,” he added.
Intu said it received just 29% of second quarter rent from tenants, down from 77% for the same period last year. Intu, which employs 2,600 people, was in a tight spot going into the pandemic. It posted a £2 billion ($2.5 billion) loss last year.
News of its collapse into insolvency will come as a particularly bitter blow to retailers because it coincides with a loosening of lockdown restrictions in the United Kingdom that has allowed stores to welcome customers again for the first time in months.
Brands such as Zara and H&M, which have already suffered steep sales declines this year, have outlets in malls owned by Intu. H&M said Friday that worldwide sales fell 50% from March through May, while Zara owner Inditex, the world’s biggest clothing retailer, reported a 44% drop in sales for the three months to March. Both brands plan to accelerate store closures and a shift to online retailing — one of the few bright spots in the pandemic.
Only grocery stores and online retailers have dodged the slump in UK retail sales over the past few months, with the pandemic accelerating a move to e-commerce that was already hurting physical stores. Both the volume and value of retail sales suffered record declines over the three months to May, falling by 14% and 13%, respectively, when compared with the previous three months, according to the Office for National Statistics.
The proportion spent online soared to the highest on record in May at 33.4%, breaking April’s 31% record, according to ONS.
In the United States, several major chains, such as JCPenney and Neiman Marcus, have already filed for bankruptcy and as many as 25,000 physical stores are expected to permanently close this year, driven partly by the continued shift to online shopping, according to Coresight Research. More than half of the store closures are expected to come in malls.
The pandemic is forcing companies across Britain to take drastic action.
British Airways parent IAG went into the crisis with cash of around €10 billion ($11.2 billion). Still, the carrier may cut about a quarter of its workforce, or 12,000 jobs, as the effects of the coronavirus crisis on global aviation linger.
Several other major UK companies, from Rolls Royce, BP (BP), EasyJet (ESYJY) and HSBC (HSBC), to luxury goods maker Mulberry, energy company Centrica (CPYYF) and aerospace parts supplier Meggitt (MEGGF) are cutting jobs.
More job losses are expected when the government’s wage support program — currently subsidizing 9.2 million salaries, or over 27% of the workforce — ends in October.
Industry groups have meanwhile warned that British businesses, which have already borrowed billions of pounds under government coronavirus relief programs, won’t be able to withstand the shock from new EU trade barriers that will result if a trade deal is not agreed with Brussels this year.
— Nathaniel Meyersohn contributed reporting.