Analysis: Clinging to life in the ghost town

London, you may have heard, is a ghost town.

In the latest round of borderline dystopian statistics to surface as a result of the pandemic, just 7,000 of the 120,000 workers based in Canary Wharf are back at their desks.

According to the latest data from the Office for National Statistics, 57.2% of Londoners are, or have been, working from home over the last few months, which explains why Transport for London has seen an 80% drop in daily tube users.

And whilst office workers across the capital may be thrilled to be without the twice daily commuter Hunger Games, for those in hospitality, a few stifling minutes on the central line is a non-issue if the alternative is unemployment.

In the last month alone, city-based to-go brands including Wasabi, Pret and most recently Itsu have appointed advisors to assess their options.

Talk of CVA’s, restructures and even administrations in this sub-sector are growing – something that 20-strong healthy eating brand Tossed, forced to appoint administrators and inform its staff they would be made redundant last week, knows all too well.

As MCA contributing editor Peter Martin accurately points out, “if there are no people going by in the morning or at lunchtime in city centres, you have no business. It’s as simple as that.”

And whilst the mention of advisors might ring alarm bells, he says, faced with the current economic climate, it could be time to shed the stigma.

“It’s people being sensible about seeing what their options are and how they could possibly change their model,” he says.

“In a sense, it’s good that companies are looking at what their futures are going to be, rather than just waiting for the inevitable to happen.”

In fact, although entering a formal process shouldn’t be considered as a first resort, it’s likely to be a necessary step for many businesses if they are to survive the next few months, adds Brian Burke, director of advisory firm Quantuma.

Although operators across the casual dining sector may have to consider their position in the coming months, Burke explains for those reliant on London’s office and tourism trade, the future is particularly uncertain, and they will have to act accordingly.

“The lack of people going into London is notable, and it’s clear that we’re not going to just turn the tap back on and everyone will go back again,” he says. “It isn’t a stop-start situation.”

“You’ve got a business that’s stopped, has liabilities that have built up over a six-month period, and is now tentatively trying to come back out from that.”

Whilst businesses can make assumptions about the future state of the market, he says, the fact remains that given the unprecedented situation the country finds itself in, “the only thing you can be certain of is that as of tomorrow, you’re not going to be trading at the levels that you’ve been at historically.”

And unfortunately, despite consumers across the country slowly returning to their local much-missed pubs and restaurants, Londoners looking to lunch aren’t likely to follow suit.

Given the practicalities of reopening an office block, inner-city operators focused on long-term survival must accept that complete recovery is a long way off, says Charles Brook of business recovery firm Poppleton & Appleby.

In many offices, the nature and size of elevators, corridors and toilet facilities would deem distancing completely impossible, he says, “so, many of those offices are going to remain unoccupied for weeks if not months to come.”

Like Burke, Brook is of the opinion that formal processes should be avoided in favour of private negotiations where possible.

However, he adds that those businesses utilising the debt and rent moratorium as an opportunity to restructure, are doing so on the premise that formal insolvency will be avoided, and therefore can be seen as proactive, rather than failing.

“Although those opting for restructure could potentially move to a CVA or administration, the idea is that you’d use the moratorium if it is likely that a restructuring can be achieved to avoid any formal insolvency,” he says.

“It’s very difficult to crystal ball gaze, but you’d only use [the moratorium for a restructuring] if it’s more likely than not [that it will be successful].”

“In many cases a formal process could be necessary if only to provide a platform on which to move forward,” agrees Burke. “Because businesses are restarting in a completely different environment to the one they stopped in.”

So, what are these next steps? And which direction should they be in?

Despite a slight shift in Boris Johnson’s messaging from ‘work from home if you can’ to ‘get back to work if you can,’ UK Hospitality CEO Kate Nicholls fears that without strong incentive and a reversal of the government’s previous ‘stay at home’ campaign, London is likely to remain in its current state.

“We are going to see major job losses across London, and to a lesser extent other town and city centres, unless we can change that messaging,” she says. “We need to be telling people that they should get back to work. The previous message is really entrenched and the longer we leave it, the harder it will be to overcome.”

But even if your faith in the prime minister’s ability to see the country out of this crisis is diminishing with each mixed message he mutters, all hope is not lost.

Since the start of the crisis, the innovation of operators in adapting to lockdown – initiating delivery, ‘curb side’ click and collect, meal-kits and more - has been astounding.

And Burke says that now, more than ever, “adaptation is the big word.”

A number of the to-go brands in question – not least Itsu, which already has a strong and growing grocery arm in the likes of Tesco, Sainsbury’s and Ocado – have already expanded into other areas, and in Burke’s view, leaning into these alternative revenue streams is a good place for London-based operators to start.

“Businesses have got to look at their model in terms of the market they are supplying to,” he says. “And the market that they’re supplying to has changed.”

With consumer spend on essential items up, combined with increased use of delivery and apps, he feels that in protecting businesses in the long term, short term adaptation is key.

“We don’t know if there will be a second spike or whether this virus will be with us for years to come. So, the entire industry will have to adapt to whatever the new normal is.”

And if businesses feel they need to enter a formal process in order to establish the most effective path to move forward, he says, then that is what they should do.

“Businesses need to look at themselves very carefully and work out what they are going to need in order to move forward.”

“A [CVA or restructuring] is about dealing with landlords and the liabilities you’ve build up over time.”

“It should allow you to come to an agreement that can aid you in executing your new business model so you can survive, and hopefully at some point, thrive.”

“Until you’ve got a platform that you can comfortably stand on, how do you take your next step?”