Troubled UK Charities Likely to Impact Retail Sector

The global pandemic has resulted in an ever increasing need for charities to support vulnerable people and communities. However, charities across the UK face financial distress due to depleting fundraising and trading income, with the retail sector likely to be one of the first to feel the knock-on effects, particularly as charities with large retail footprints begin to reevaluate the need for a high street presence.

Recent research from Pro Bono Economics suggests that the COVID-19 crisis will trigger a £6.4 billion (bn) loss of income for charities over the next six months, just as demand rises for additional services—such as health and social care—adding on extra costs of up to £3.7 bn.¹ The research also warned that, as a consequence of soaring demand for their services and lost fundraising income, one in 10 UK charities may face insolvency by the end of the year.²

A perfect storm has emerged across the charity sector over recent months. On the one hand, as fundraising events have been canceled and shops closed their doors during lockdown, a significant proportion of the net resources available to charities diminished almost overnight. With this income wiped out, many began to fall back on their reserves, but evidence suggests that the large majority do not have the required level to look beyond the short to medium term.³

This loss of income is being compounded by the rise in the demand for services. Charities deliver vital services and give much-needed support to a variety of people, some of whom may be the most vulnerable to COVID-19, and this is only set to rise in the coming months.

When the pandemic broke out, the government pledged £750 million (mn) of funding for frontline charities, with £370 mn earmarked for small and medium-sized charities.⁴ The government also pledged to match £33.5 mn raised from the BBC’s Big Night In for charities, while some were also eligible for the Coronavirus Business Interruption Loan Scheme (CBILS), Time To Pay (TTP) arrangements and business rates relief to manage liquidity in the short term.⁵

While the support offered to charities has gone some way to make up for the loss in income, it is unlikely to be enough to prevent many charities from facing significant challenges, particularly given that support was targeted at certain parts of the sector. This is particularly the case for charities that generate funds from trading activities, which are likely to be impacted by the reduced levels of consumer demand and confidence that has been seen so far post-lockdown. Further, stores now must adopt COVID-19 safety measures, which will come at a significant cost, while rents continue to be due and payable despite charity shops having been mothballed with no income being generated.

Although many of the 11,200 charity shops in the UK have now reopened their doors, the associated cost base of operating store portfolios, particularly in the context of a shift to e-commerce amongst retailers over the last few months, is now putting the need for a retail and high street footprint under increased scrutiny. Landlords and other stakeholders across the retail sector will be particularly concerned by this, as those charities with trading activities tend to operate large store portfolios. The pandemic has already seen the retail landscape change dramatically and any restructuring of charity store estates will undoubtedly add to the uncertainty across the sector.

Charities will feel the effect of the pandemic for many years to come. Trustees should consider commercial solutions for a charitable situation with increasing demand, reduced capacity and a limited ability to generate income from fundraising or trading. In addition, they should seek professional support if and when the charity in question is facing financial pressure.

Sources
^{1, 2} https://www.probonoeconomics.com/impact-covid-charity-sector
³ https://www.ncvo.org.uk/about-us/media-centre/press-releases/2748-every-day-counts-as-charities-still-wait-for-government-support
⁴ https://www.gov.uk/government/news/chancellor-sets-out-extra-750-million-coronavirus-funding-for-frontline-charities
⁵ https://www.bbc.co.uk/mediacentre/latestnews/2020/big-night-in-further-total