Sector trends

Cities and seaside towns: reopening leisure and retail

As non-essential retailers and hospitality businesses begin to welcome customers back, we look at the challenges and opportunities the pandemic has created for operators in two contrasting locations.

Businesses in the retail, leisure and hospitality sectors have been buoyed by the news that the government’s post-lockdown reopening plans remain on track as coronavirus infection and hospitalisation rates continue to fall.

One of the key dates in the schedule is 12 April, marking the point at which non-essential retailers can once again open their doors, while the likes of pubs, restaurants and cafes are able to resume service – for the time being, on an outdoor-only basis.

Retail and hospitality have been hit particularly hard by the government’s lockdown policies over the past year, as well as by public reaction to the pandemic. New research by NatWest in partnership with Retail Economics, for example, has found that 44% of consumers have cut back on their non-essential spending over the past 12 months.

But the impact of the pandemic has varied to a significant degree depending on where businesses are located.

In Britain’s city centres, for example, the large-scale shift to working from home has led to a slump in demand, even outside of lockdown periods, with millions of people no longer commuting to work. It remains to be seen whether this trend will continue beyond the end of the pandemic.

Hard hit but optimistic about recovery

For companies located on Britain’s coastline, however, the outlook is different. In many seaside areas, the hospitality and leisure sector is the biggest employer – as a result, the economic consequences of the pandemic have extended far beyond the impact on businesses.

According to trade body UKHospitality, while the sector provides around one tenth of jobs nationally, in some coastal areas and tourism hotspots this proportion can rise to 50%.

However, says Paul Dawson, the bank’s leisure and hotel specialist, the impact on individual businesses in coastal regions has in many cases been less severe than in urban areas.

“The coastal market is very seasonal, so October through to February – when the pandemic has been at its worst – is normally their quiet period in any case,” he says. In addition, the government support businesses have received in terms of furloughing staff or applying for grants may have helped them overcome any loss of trade over the winter months.

“I think many people have used the grant money to adopt social distancing measures and to remodel their businesses – for example by reconfiguring dining spaces so they can get in as many covers as before Covid,” Dawson adds.

The sector is broadly optimistic about the coming summer, he says. “It is expected that domestic holidaying in the UK will more than offset the fall in international tourism in the short term. Demand is sufficiently strong in some areas that hoteliers and other accommodation providers are able to charge premium rates once they are allowed to reopen on 17 May.”

Boost from domestic tourism

The hoped-for influx of domestic tourists can be expected to boost other coastal businesses such as retailers, restaurants and pubs. But there are some potential stumbling blocks: “One of the difficulties that pubs and restaurants offering outdoor dining face is ensuring that people who book tables actually turn up,” says Dawson. “Last year there were issues with customers booking several tables at different establishments and then choosing which to make use of at the last minute.

“For the period until indoor dining is allowed in May, the weather is going to make or break reopening for many businesses, and there is no guarantee we will be able to stick to the current road map in terms of rising infection levels elsewhere in Europe, for example.”

One of the concerns expressed by retail and hospitality businesses in major city centres is what the post-pandemic world will look like, says Andy Lancaster, the bank’s director of hotels and leisure.

Demand is sufficiently strong in some areas that hoteliers and other accommodation providers are able to charge premium rates once they are allowed to reopen on 17 May

Paul Dawson
Leisure and hotel specialist, NatWest

“Since the start of the pandemic, the big challenge for city centres has been foot flow,” he says. “Normally, this is the combination of office workers, leisure travellers and inbound business travellers – and because those groups have largely been absent during the pandemic, operators in city centres have been materially hit. Even when lockdown restrictions were relaxed, it didn’t really lead to a rise in international travel or office workers.”

Lancaster adds: “What everyone has been doing is trying to look into the future and determine what it will look like. What is the future foot flow going to be compared to the past? How many people will be coming into transport hubs?”

He points to reports that suggest many major employers will no longer require workers to come into the office five days a week, which would lead to a permanent drop-off in demand.

“Some retail and hospitality businesses have taken or will take the decision to voluntarily close, while others are trying to pitch their offering in an appropriate way and cut their costs,” he says. “Office workers will still spend, but does that spend shift into out-of-town or suburban areas?”

Lancaster believes the way companies have adapted during the pandemic is likely to help them cope with a gradual return to normality. The Pret A Manger chain was one of the earliest hospitality groups to announce a strategic rethink, stating last September that it planned to “follow the customer” and open more suburban outlets, while also selling branded coffee and food through major retailers.

“Every business during the pandemic has looked at its cost base – and a lot of companies, having stripped their expenses down to zero, will be wary of taking on extra costs too quickly,” says Lancaster. “So maybe having a leaner business, which is slowly built back up in line with trading, will mean that a reduced revenue may not have the same impact on the bottom line.”

Embracing innovation has paid off

So far in the pandemic, many firms have been able to mothball their operations with minimal costs thanks to government support programmes such as the Job Retention Scheme and a moratorium on evictions. Retailers have been able to embrace e-commerce, while some restaurants have become more innovative.

“The pandemic has accelerated a lot of trends,” Lancaster says. “In hospitality, for example, there were a lot of businesses that historically said takeaway couldn’t work. But in the absence of any alternative, they have tried it, or started to offer cook-at-home options. These have been well received, and brands have been able to stay connected to their customers.

“The question again is: to what extent will these changes stick as people start to feel more relaxed about going out?”

This material is published by NatWest Group plc (“NatWest Group”), for information purposes only and should not be regarded as providing any specific advice. Recipients should make their own independent evaluation of this information and no action should be taken, solely relying on it. This material should not be reproduced or disclosed without our consent. It is not intended for distribution in any jurisdiction in which this would be prohibited. Whilst this information is believed to be reliable, it has not been independently verified by NatWest Group and NatWest Group makes no representation or warranty (express or implied) of any kind, as regards the accuracy or completeness of this information, nor does it accept any responsibility or liability for any loss or damage arising in any way from any use made of or reliance placed on, this information. Unless otherwise stated, any views, forecasts, or estimates are solely those of NatWest Group, as of this date and are subject to change without notice. Copyright © NatWest Group. All rights reserved.

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