Begg Shoes – Business Update 15th May 2020
This briefing is designed to raise awareness of the specific challenges faced by this independent, family run retail business with regards the ongoing Covid 19 pandemic.
The company continues to see the ongoing crisis as the most serious threat to its survival in its 154-year history. The Begg family are doing everything possible to ensure the long term survival of this highly regarded independent business and continued employment for all its staff.
All employees and customers of Begg Shoes have been incredibly supportive of the family and the business during frightening and uncertain times for all.
Scottish Government Grant Assistance for Retail (in relation to Covid 19)
At the time of original announcement of business support measures at UK level, the Scottish Government promised to pass on all consequential funding to businesses in Scotland. Subsequently they decided not to do as promised and would allow only one grant per business (rather than one per property as is the case in England and Wales). This decision resulted in a backlash from Scottish businesses.
Thankfully, after a significant amount of campaigning by Scottish businesses, the decision was partially overturned and they offered a grant amounting to 75% of what an English/Welsh business would receive on a property with a business over £18k in rateable value. While this represents a relative improvement, it is not the same as what was initially promised.
Further, the U-turn did not address the oversight of properties with a rateable value less than £18k – they will not receive any grant at all if there is more than 1 property in a business. This has left many businesses in Scotland in a position where some of their properties still do not receive any grant funding at all and is a clear mistake in the application of the grant funding. Eg. Rateable value of a multi property business is £17k, in England would receive a £25k grant. In Scotland, it would receive nothing. The difference is stark.
For Begg Shoes, the grant funding available is 31% or £68,750 lower than in England/Wales. Many other businesses face the same problem which has resulted in the Save Scottish Business Group raising a judicial review of the Scottish Government. The review has had the go-ahead and will hopefully see equality granted to Scottish businesses like Begg Shoes at a time when financial support is essential in order to survive.
It remains unclear exactly how the Scottish Government has spent the £3.3bn they have been given by the UK Government to support Scottish businesses. To date, £2.2bn has been accounted for. We have established that millions of pounds has been spent on offering business rates relief to the large supermarkets while they remain open and are recording record sales. Grants have also been given to several MSP’s (for their offices) when the MSP continues to work from home. “Non-essential” retailers, bakers, pubs, SPA’s, hairdressers and restaurants across Scotland have lost out while others have gained.
- The Scottish Government’s allocation of funds received from the UK Government may lead to significant job losses in the retail, leisure and tourism sectors which account for over 20% of all jobs in Scotland.
- The main online competitors of Begg Shoes (including similar retail SMEs) are located in England and now have a material competitive advantage.
- Begg Shoes has just invested over £1.5m in brand new summer stock which can now only be sold online while stores are closed. The losses incurred from the ongoing store closures and subsequent social distancing measures will be a large multiple of the grant funding received.
Long term, these changes imply a message to Entrepreneurs and SMEs in Scotland, that the Scottish Government is determined to create distance between UK and Scottish economic policy. While there are clearly unique factors to Scotland that need addressing, the Retail, Leisure and Tourism industries have exactly the same set of issues, both sides of the border.
UK Government Assistance
The UK Government Employee Protection Scheme has been a huge financial assistance to Begg Shoes and the extension of the scheme offers further financial security both to the business and our employees. The administration of the scheme has been complex and time consuming but the UK Government and HMRC should be commended on their efforts for completing the project in the timescales they were given.
Upon re-opening of our stores, we would ask that the UK Government consider allowing additional flexibility in furlough to allow partial opening of stores in June and July. It is extremely difficult for a business, with sales which are lower than anticipated, to either have a member of staff working 0% or 100% of their contracted hours. “Flexibility” effective 1 June would allow for a more effective re-opening.
Seasonal Cash Flow Crisis
Store closures have resulted in a year-on-year decline in sales of over 70% since lock-down. Online sales have offered a cashflow lifeline, however, remain far from sufficient to sustain the entire business. Online competition is largely located in England and 71% of sales online are to locations outwith of Scotland.
Several store locations rely heavily on tourism-driven footfall in Spring and Summer trading and it is expected that regardless of store opening restrictions, sales will be severely impacted through the remainder of this year.
Cash flow pressures have been particularly acute due to the timing of closures. During Q1 the business made record purchases of stocks, settled VAT and debt obligations pre-crisis.
Impact On Employees
The severity of cashflow constraints is such that resources must be directed to support continuing staff and critical suppliers, to ensure immediate continuity and survival of the business.
Notwithstanding the business having to temporarily close its stores and experience an unprecedented decrease in sales, Begg Shoes retained all employees following the announcement of income support measures by the UK Government.
Debt Finance & Long Term Funding
Loan finance is in the process of being secured to finance the payment of staff wages and critical suppliers at the end of April.
It is anticipated that the economic impact will extend well in to 2021 if not beyond. The business remains hopeful that the Scottish Government will change its stance on financial support for businesses like Begg Shoes.
The directors of Begg Shoes recognise that the aforementioned factors will result in very substantial financial losses for the company, which will rely heavily on personal savings and debt to survive the crisis.
The company is having to approach loan facilities with extreme caution while cash inflows are so limited. It is known that unsustainable levels of debt will cause total business failure in the future and this must be avoided.
Cost cutting within the supply chain, including all non-essential services has become a necessity for management of the business.
The Scottish Government has provided Begg Shoes with business rates relief for a 1 year period which has been a vital support measure.
The company has been appealing for rent holidays, supply cancellations, fee waivers, discounts or payment deferrals wherever possible from suppliers.
Begg Shoes directors are continuing to consult with all vendors and hopes to resolve for positive outcomes and lasting relationships with each of their suppliers, landlords and vendors.
Key Underlying Retail Sector Trends
The massive challenges facing the retail sector UK wide have been well documented prior to the outbreak of the crisis. Large and SME (small & medium sized enterprises) retailers have suffered from the long running decline of High Street footfall and sales, due to the rapid rise in online shopping (now around a third of UK retail). At the same time, operating costs have been rising sharply, leaving many traditional SME retailers in financial difficulty prior to this crisis. In recent years, business rates have continued to rise as a proportion of sales which adds significant pressure to an industry that desperately needs support.
Store closures nationwide have added even more pressure to the industry which still relies heavily on “bricks and mortar” retail. The growth rates in online sales are now declining and strategically companies like Amazon are now moving into bricks and mortar to complement their internet offering. It is also worth noting that Amazon UK has recently confirmed that 58% of their sales are fulfilled by “marketplace” sellers like Begg Shoes in Scotland. It is vital that bricks and mortar retail in Scotland is not “hung out to dry” as retailers like Amazon will never be a complete solution and should not be given monopolistic powers.
While Begg Shoes has made it through wars, recessions, depressions, technological changes and more recently the “death of the High Street”, there is no doubt Covid 19 presents its biggest challenge so far. Initially after lockdown sales dipped by over 90% but have since improved slightly and now are around 70% lower than last year thanks to our successful web business.
These days, online shopping is now “borderless”, a delivery to Scotland most likely comes from a warehouse in England. Indeed for Begg Shoes, England is the biggest potential market for our website as it has a much larger population. Independent, family run retailers such as Begg Shoes have been investing heavily to go online and stay relevant in modern retail, seeking to preserve traditional retail and working in harmony with online.
According to the most recent available report on the Scottish Government website, 13% of private sector jobs in Scotland are in the retail sector.
Begg Shoes Company Bio
Begg Shoes is a shoe retail company based in the North of Scotland serving customers locally through its stores and nationwide via its website. A small, independent business, Begg Shoes is run day to day by Garek, Fiona and their sons Donald and Gaven, who are the sixth generation of the Begg family to join the family trade. There are nine Begg Shoes stores based in Scotland which provide a unique range of product from high-quality brands and shoe makers from all over the world.
Begg Shoes was established in 1866 and has over 150 years of footwear industry experience. First class customer service is the hallmark of the business and highly trained customer service teams boast an average of over 6 years working experience, and all the helpful knowledge that brings.
Please contact firstname.lastname@example.org while stores are closed for any enquiries.