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    INTERNATIONAL CORPORATE BANKING  |  3 POINT PERSPECTIVE

    The future of the UK retail sector

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    Contributors: Tim Helliwell, Graham Holland, Rahul Daniel, Andrew Ingles

    28 Jun 2024

    The retail and consumer sectors have experienced a period of accelerated development, with the rapid growth of e-commerce. But consumer preferences are shifting again. The evolving landscape of commerce has profound implications for treasury management, including capital structures, payments, and working capital and liquidity management, according to our International Corporate Banking experts.

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    Contributors: Tim Helliwell, Graham Holland, Rahul Daniel, Andrew Ingles

    28 Jun 2024

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    1. Omni-channel retail is the way forward  

    The last few years have been turbulent for the retail sector given the number of industry-altering events including, COVID-19, Brexit, supply chain shocks, and the Ukraine war.

    In particular, e-commerce experienced a huge uptick during the pandemic as non-essential retail stores closed and demographics previously not online shifted their spending online en masse. While that surge in retail spend has flattened as customers returned to physical shopping, there is no doubt that e-commerce retailers and marketplaces are bigger than ever today.

    At the same time, there is growing recognition of the benefits of an omni-channel approach that combines a strong online presence with physical stores, as customers are increasingly keen on having flexibility in how they research, purchase and return goods.

    Findings from the Barclays UK Consumer Retail Report highlight consumers’ demand for flexibility when shopping:

    Retailers surveyed for the report said that just over 50% of their revenue is now driven by digital channels. Yet, ONS Retail Sales data for April 2024 shows that 26.5% of all retail sales were completed online – down from a peak in February 2021 of 36.8%. This suggests that consumers are engaging with digital but that many are choosing to complete purchases in store.

    But not all market participants have adapted a hybrid strategy. The business model of some pure play e-commerce companies that prioritised growth over the bottom line has faced a reckoning. Higher rates and mortgage costs, combined with inflated energy and food prices, have increased consumers’ caution, and slowed growth. With the abrupt end of the low interest rate era of the past decade, investors are less willing to finance companies without a clear route to profitability.

    2. Treasury must adapt to changing industry dynamics 

    The shifting landscape of retail has wide ranging implications for treasury management including:

    • More payment options: To compete online, retailers need to offer a wide range of payment options, including digital wallets, cards, buy-now pay-later and instant payments. If a consumer doesn’t see their preferred option, they’ll look to purchase from a competitor that offers it.
    • Improved inventory storage: Geopolitical instability and supply chain challenges, such as recent Red Sea shipping delays, may require companies to hold larger inventories to ensure continuity of production or sustain sales volumes, locking up additional capital.
    • Streamlined invoicing: Higher interest rates have increased working capital costs. Companies can mitigate this by accelerating receipts. One way to do this is through receivables automation via digital platforms that streamline invoicing and send payment reminders.
    • New capital sources: As rates have risen, companies are looking to new sources of capital; asset-backed lending secured by inventory, accounts receivable or real estate can be more attractively priced. Likewise, convertible bonds can reduce the cost of debt by monetising the potential upside of a company’s share price.
    • Concentrating cash: Higher rates also mean the returns on surplus cash have improved. Treasury should aim to concentrate cash by adding relevant entities and countries to its pool (accounting for local regulations). This not only increases access to cash but improves visibility, so treasury is better placed to make investment decisions and optimise returns on surplus cash.

    3. It's time for treasury teams to leverage industry data

    The retail outlook is undoubtedly tougher than a few years ago. But companies don’t have to face the challenge of adapting to the new era alone. Treasury functions should seek sector expertise to address the unique challenges faced by retailers, whether that’s re-establishing physical space or investing in new technology.  

    To prosper in this new environment, it is essential that retail companies leverage data on consumer spending habits based on actual transactions. This information can help treasury teams anticipate changing business conditions that might prompt an increased need for working capital or a potential rise in bad debts.

    Some firms will require additional help, including turnaround support, as they adjust to new consumer demands and financial conditions. Working with a partner with expertise across pure e-commerce, traditional retail and hybrid business models can deliver significant benefits, minimising turnaround time and ensuring that companies re-emerge ready to take advantage of changes in the retail sector.  

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    About the experts

    Tim Helliwell

    Head of Consumer & Healthcare UK, International Corporate Banking

    Tim Helliwell leads the Consumer, Retail & Healthcare team within International Corporate Banking at Barclays. Based in London, Tim has over 30 years banking experience working with the full spectrum of clients from large corporates to family businesses. Focused on FTSE350 and Internationally quoted clients, the team offers the full range of corporate and investment banking solutions including debt and equity capital markets.

    Graham Holland

    Director, International Corporate Banking

    Graham Holland is a Director on the International Corporate Banking team based in the UK, where he leads Treasury Coverage on a tightly focused portfolio of some of the most well-known UK retailing businesses that bank with Barclays. With 30+ years of Banking Coverage experience, Graham is well versed across all sources of finance including DCM, both Public & Private Bonds ECM and the Bank market and has led significant corporate re-capitalisation transactions over the years.

    Andrew Ingles

    Director, Special Asset Management EMEA & APAC, International Corporate Banking

    Andrew joined Barclays in 2007 and has worked in various roles across the bank including Finance, Risk and Front Office. He’s been helping Barclays clients through their turnaround journeys for almost 15 years. Supporting turnarounds is a key ethos of the bank, with early, constructive and collaborative dialogue important for creating the required runways for mutual success.

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