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East Midlands Chamber News

How Chamber survey laid bare huge challenges facing East Midlands economy

The scale of the challenges facing the East Midlands economy was laid bare in the Chamber’s most recent Quarterly Economic Survey, in which almost all indicators of economic health took a nosedive to unprecedented depths. Dan Robinson analyses the results and finds out how businesses are faring.

 

Sandra Wiggins’ manufacturing business had come a long way since forming in 2014, growing an average of 38 per cent annually during the first four years and entering 2020 with great optimism.

DPI UK, based in Castle Donington, had capitalised on the thriving events industry – even managing to prosper on the not-so-thriving high street – to supply bespoke display frames and lightboxes that work with stretched fabrics to brighten up exhibition stands and shop windows both in the UK and overseas.

Despite having to navigate the stormy waters of Brexit and the retail industry’s challenges, the company was ahead of budget in its first quarter and on course to improve its £1m turnover by 28 per cent while aiming for a proportional net profit. Then Covid-19 hit.

“Our order book fell off a cliff overnight,” says Sandra, who spent the first 48 hours taking stock as she contemplated the future of the business she had co-founded with Paul Tomlinson, before deciding to move forward by bringing a skeleton team safely back on to site – a scenario that involved members of the senior leadership working on the shop floor to fulfil the few orders they had.

Her husband has been forced to “shield” at home during lockdown for health reasons and she adds: “I understand the balance between health and economy because we have personally had to make some really hard decisions to enable me to carry on working.”

Like many businesses, she used the Government’s Coronavirus Job Retention Scheme to safeguard as many roles as possible and pivoted to begin manufacturing screens that will help maintain social distancing in offices and factories during the “new normal” for workplaces.

Sandra explains: “Exhibitions aren’t going to come back quickly – they’ve turned many of the exhibition halls into coronavirus hospitals, and realistically they’re not going to be restored until next year. That was 40 per cent of our revenue cut off overnight.”

Diversification only helped stem the tide, and she needed financial support. But as an SME within the supply chain, she says DPI has slipped through the net because the company doesn’t qualify for various schemes, including the Small Business Grants Fund and Retail, Hospitality and Leisure Grant Fund.

Even if it succeeded in obtaining a grant distributed via North West Leicestershire District Council, this is capped at £10,000 and would only cover deferred business rates during the lockdown period – but not rent or other operational overheads.

“And it in no way reflects the loss of revenue so far,” adds Sandra.

There is particular frustration at the significant underspend among local authorities for the Covid-19 grant funding, knowing the remaining money could help prop up so many businesses fighting for their lives.

The entrepreneur has also been knocked back from banks due to the high-risk category of her sector and has resorted to an 8.9% interest loan via the peer-to-peer lending platform Funding Circle – effectively storing up financial problems for further down the line once deferred VAT and business rates need paying.

She says: “Sensible business owners will be thinking of whether they can pay these back with their long-term revenue.

“Are we just deferring our business being lost altogether? We’ve had to do some big thinking but people will be asking ‘are we worth investing in ourselves and taking this big gamble?’”

 

East Midlands Chamber's Quartery Economic Survey for Q2 2020 illustrated devastating impact of coronavirus

DPI UK’s struggles are symptomatic of an extraordinary crash in the East Midlands, and national, economy due to Covid-enforced lockdown.

The Chamber’s Quarterly Economic Survey for Q2 2020, which was completed by 444 of the region’s businesses between May and June, found that a net 67 per cent of firms reported a decline in UK sales in the three months to June, while a net 50 per cent witnessed a fall in export sales.

Order books also took a hit, with a net 55 per cent reporting a fall in UK orders for Q3, while for exporters, the fall was a net -46 per cent.

Survey data is modelled by the Chamber across a range of key performance indicators – including sales and orders, recruitment, cashflow, investment intentions and confidence – to produce a quarterly State of the Economy Index, which enables it to compare local business performance quarter-by-quarter.

In Q2, the score fell to -411, by far its lowest level on record and the first time it has fallen into negative territory.

In fact, it is the mirror opposite of the +411 peak that it reached just six years ago in Q2 2014.

Scott Knowles, chief executive of the Chamber, says the survey highlighted the “unprecedented” speed at which the economy shut down during lockdown.

“Whole swathes of the business community either ceased or dramatically reduced activity, with some yet to get back underway,” he says.

“For most businesses, this period was defined by uncertainty and a wait for much-needed clarity about how and when the economy may unlock, and any further health implications this may have.”

The most obvious and tangible impact of the crisis is in the rapidly rising numbers of job losses.

Nationally, Sky News analysis identified at least 93,000 roles had been cut by 58 major businesses between 23 March and 23 July.

The worst-hit industries were aviation (30,675 jobs lost), retail (16,362), hospitality (13,319), energy (9,600) and manufacturing (7,198).

In the East Midlands, Rolls-Royce announced in June it would cut 3,000 jobs across the UK – with half the redundancies at its Derby base – and Boots shed 4,000 roles a month later, saying the move would particularly affect staff at its Nottingham head office.

The bleak outlook for the East Midlands jobs market was reflected in the Chamber’s survey, in which 36 per cent of respondents said they had reduced their headcount in Q2, with only four per cent increasing their workforce numbers.

And with the furlough scheme due to phase out in Q3 – and ending altogether on 31 October – a further 34 per cent anticipate more staff reductions in the three months following the survey period.

Scott says: “Clearly, there’s a long way to go before the economy can fully recover, and there will be many hard stories at both an organisational and an individual level in the months ahead.”

 

Signs of recovery in East Midlands economy as companies diversify

In a parallel universe without coronavirus, Sandra and her team would be at their busiest, with the period between July and November representing their annual peak for workload.

Instead, she is contemplating the future for her business, admitting “we have no way of recouping that shortfall” and facing up to thousands of pounds in debt that could be activated at any point in the coming months.

DPI UK has already been forced to lay off two staff from the 11-strong workforce that pre-dated the crisis.

While the Government has promised a £1,000 job retention bonus for every employee currently on furlough – there are six at Sandra’s business – kept on the books until the end of January, she says the real impact of this is negligible.

“How does that equate to three months’ worth of salary?” she asks. “The Government isn’t balancing the figures here at all – it’s just deferred debt.”

The Chamber’s survey did provide some reason for optimism, however. While companies like DPI don’t expect to see orders pick up until the beginning of next year at the earliest, one in five respondents said they anticipated their business to return to 100 per cent or more of pre-lockdown activity levels by the end of 2020. A further 45 per cent said they would achieve this by the end of 2021.

To help them do so, 36 per cent said they would actively look to invest in activity that would help to diversify their offer to access new markets, while 25 per cent said they would invest further in staff training to improve efficiencies.

Aatin Anadkat has diversified his market, rather than product range, to ward off the coronavirus threat.

His plant-based, allergen-free food supermarket Positive Kitchen, based at the Chamber-managed Leicester Food Park, had been operating for about nine months when the crisis struck.

It had primarily sold to the foodservice sector but when the supply line was cut off in one fell swoop, he quickly pivoted to focus instead on a direct-to-consumer subsidiary called Positive Bakes, which hadn’t been given much attention until that point.

“We thought there was an opportunity for gifting because people couldn’t see each other,” explains Aatin.

“We didn’t change our lines but just where they were being sent to. Since then, we haven’t looked back and have taken on a few more people during Covid.”

By increasing its headcount of five people to seven, Positive Kitchen has gone against the trend among small businesses.

While the trade orders represented a higher value than retail, it’s unclear how quickly his original client base will return so he has decided to carry through the momentum built up during lockdown.”

Aatin believes he can continue with both revenue streams and is even considering how to export his products into Europe, pending the outcome of Brexit, as he believes there is always a place for niche, high-end value products that have an obvious market proposition.

“We weren’t sitting on huge cash reserves to sit it out for three months and then come back because what were we going to come back to?”, he adds.

“As entrepreneurs, it’s all about adapting and evolving. You think you’re going to do something and then something else comes along that sticks. 

“It’s not that coronavirus has made it easier for us, but maybe it’s accelerated what we were going to do – and we should come out of this wanting to grow at scale.”

 

This article appeared in the August/September issue of Business Network magazine. To read the digital edition, click here.

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