2020/21 Reporting Season: how much harder could it be for retailers?
13 January 2021: With a difficult year behind them, the upcoming reporting season is likely to cause further issues for both retailers and their auditors. We speak to Jacqui Baker, boutique owner and Audit Director at RSM UK Audit, about year ends, going concern and wellbeing.
The boutique opened 18 months ago. “It has been a very different 18 months than we had anticipated,” says Baker, wearing her retailer’s hat. “Sales were phenomenal until the first lockdown. But when we were forced to close, we had to harness our digital platforms and our social media came into its own as a sales channel.”
Baker admits the prospect of lockdown was awful for a fashion retailer, especially a boutique that prided itself on selling short production runs quickly. “Our initial concern was not so much to do with generating cash,” she says. “It was more that we had a shop full of stock to move. A lot of retailers were in the same position.”
Instagram and Facebook came to the rescue and the results were astounding. “We were amazed by the support and uptake. The ‘shop local’ trend has really helped local businesses keep their communities thriving. As an independent, the support from locals was really important,” she says. “We were doing the same for the local bars, restaurants and grocers.”
The rally of support from the community moved all its summer stock, as well as generating much-needed cash. “It all boiled down to adapting the way we worked. However, we also had to determine which orders we could reduce, and we had to switch out of selling occasional wear into loungewear,” says Baker.
For niche, independent, retailers, developing a significant online presence is often not the solution, she points out. The big online retailers work to a very different model to the high street boutique: volumes are usually high, logistics are often a large part of the mix and both costs and prices look different in the purely online world.
Perhaps for online retailers, lockdown has not felt as bad. However, they may not have fared as well as they might have hoped. What is more, they do not expect interest in digital retail to stay at this enhanced level. It is an artificial situation that is bound to change.
“Habits have obviously changed for now but there are still a lot of people who want to touch what they are buying,” she points out. “And there is a strong link between hospitality and retail in terms of generating footfall.” When one sector comes back, the expectation is that the other will come back with it, but some will inevitably struggle to survive.
Whereas the switch to online for the consumer has been straightforward, replicating the seasonal buying process online for the retailers is very difficult. Baker points out there is a physical relationship with the goods that an independent boutique buys that cannot be replicated digitally.
Retail clients and year end close
As for her retail clients and their ability to close their year ends, Baker says their situations have understandably been somewhat erratic. She has just signed off many clients’ delayed December 2019 year ends. Early in the year, many of her retail clients closed their doors and furloughed their staff. “That was the best thing for them to do,” she notes. “That went on for a lot longer than any of us could have ever imagined. Filing their accounts was at the bottom of their list of priorities at that time.” However, the day of reckoning is fast approaching.
Then there are going concern issues. Predicting the next few months for retail and hospitality is extremely hard. “The scrutiny we are undertaking now as auditors is understandably high,” says Baker. But forecasting and stress-testing have less meaning as we travel through the different tiers and go in and out of lockdown. It is getter harder to understand where a stressed retail business is heading.
However, Baker points out it is important to make directors aware of their own responsibilities around going concern. It is not just for the auditors to make going concern assessments. If there is a hole in the director’s assumptions around cashflow, access to capital, market performance or even the pandemic, they need to be mindful that the directors must take hold of the position.
The last 10 months or so have brought unprecedented challenges and changes across the board. Baker says RSM has been hugely supportive of its staff, carefully considering everyone’s personal circumstances. There has never been a time when personal wellbeing and understanding people’s individual circumstances have been so important, she points out. RSM has taken the time to understand the needs of its employees, whether that being support for homeschooling, lunchtime yoga sessions or “take a break” virtual coffee mornings.
Learning to accept anything other than year-on-year growth in the business environment – especially amongst microentities – is tough. But in these difficult times, success can look very different. It can boil down to sustaining market presence, pivoting the business model without becoming irrelevant to the consumer, refining operations for maximum agility or simply continuing to operate. For now, success can look like that too.
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