Radar Report: Trends impacting the retail industry

Radar Report: Trends impacting the retail industry

A recession traditionally takes months to reveal itself, giving businesses ample warning to adapt and move with consideration. Most businesses can take a manageable hit and continue trading. COVID-19, in frightening comparison, gave no warning, taking businesses from one hundred to zero in a few days. In this article, we look at the trends that will impact several retail businesses now, soon and later, and how business owners can help guide and provide value through the pandemic.

Businesses in the retail sector have never needed sound advice more than they do right now. Even those who haven’t been directly impacted by the coronavirus pandemic are feeling the pinch from the flow-on effects of lockdown. Now, many need assistance to help them navigate complex stimulus packages and tax concessions, temporary changes to Fair Work legislation and their own business planning for the months ahead.

The announcement of the Global Pandemic hit the retail industry harder and faster than any other industry, resulting in one of two scenarios for most businesses.

The first is the worst case scenario, where the music suddenly stopped, and so did sales.

It went from ‘steady’ to ‘zero’ in a matter of a few days.

“Nobody planned for a zero-revenue scenario, I think you are going to see a lot of liquidations, toward the end of the year most likely.” Bryant Riley CEO of B. Riley Financial. (Source)

And, the second is Extreme Demand, in patterns we haven’t ever seen before. Initially, we saw panic buying of common household goods and food across the globe. Manic sales are still up for the right products that help families prepare and survive in isolation.

It appears this was also borne out by the Australian Bureau of Statistics’ Retail Trade figures for March, revealing a whopping 8.5 percent sales increase year-on-year (seasonally adjusted). However, the gains were mostly derived from spending on essentials, while discretionary spend and hospitality categories lost out in a big way. The ABS is also tipping retail to have dipped significantly in April (an estimated -17.9 percent), so the sector can probably expect a bumpy ride over the months to come.


Give the people what they want (or better, what they need)


As always in retail, the key to success is to remain focussed on what people want, and, at this strange time, it is even more about offering what people need. The best place to start is the basic philosophy of Maslow’s Hierarchy Of Needs. If your clients’ products speak to any category of the below pyramid, then focus on that and make it as accessible as possible to people in need.

This article will focus on the trends impacting the Retail Industries across three horizons throughout the pandemic, according to the below (rough) timelines.

  • Now: During the remainder of the lockdown
  • Soon: Transitioning into a social-distanced retail environment
  • Later: Post-vaccine, when we can return to life with the freedoms and opportunities that existed before

NOW (3-6 months)


The uncertainty of COVID-19’s impact has left all classes of society bunker down literally, and financially. The universal move for businesses has been to immediately cut costs to a bare minimum, and requesting relief from rent, bills and loans where feasible.

There have also been clear opportunities to divert some unneeded supply-side capacity to help people in need, and if manufacturers can fulfil, pivot to making much needed protective clothing for medical and care staff.

If there’s demand for a product, retail businesses need help people gain access to them safely, cleanly and at a fair price.

If those retailers are restricted by having to close their physical store, then expanding and scaling online fulfilment is priority one.

And if, for whatever reason, retailers have experienced a total or near-total halt to trade, then they essentially have three options:

  • Hold – Hibernate the operations to stop the bleeding, and wait for the curve to be flattened, and life to partially return to normal. Leverage stimulus, tax concessions and other relief as much as possible.
  • Fold – This is reality for those retail outfits that have lived too close to the line, and don’t have the capital to get them through the pandemic. Immediate advice on wrapping a business up should be sought and considered carefully.
  • Be Bold – Can the business expand product lines laterally? Can they distribute somewhere new? Can they collaborate with a business or creator from another space to create something new, unique, and useful to people in isolation? 

SOON


As we begin to emerge from isolation, we will see The Great Hesitation as the risk of another wave is likely, causing people not to return to normal life for a long period of time.

This is the time to focus on core products, running the business as lean as possible.

If a retailer hasn’t already, now’s the time to go all in on the internet. List your stock in as many places as possible, such as Amazon and eBay, but remember to manage sensitive customer data. Emails, analytics and sales data should all be kept as a primary source.

Through this period, it’s important to maintain business-critical marketing initiatives. Be sure to communicate with customers about hygiene practices and how you are ensuring the safety of their staff and customers.

Assure staff they have a secure and valued position for as long as you plan on staying in business.


LATER


For retailers that make it through the pandemic, it’s evidence that they have a strong brand and offering, and customer base. This should be leveraged to expand into other product ranges and markets. Retail businesses need to brace for The Long Tail Of Recovery, and constantly innovate and adjust to what customers are wanting and how they are wanting to access it.

While we stare out the windows of our home and essential workspaces, we see a vastly different world. We must not forget the best stimulus, and the only way back to any sort of normality is to contain the spread of virus, and wash your hands and stay at home. But most importantly, save lives.


A practitioner’s perspective

Peter Thorp, Director, Australian Bookkeepers Network


The armchair experts are full of predictions about how long we’ll be affected by the pandemic, as well as its ultimate economic impact. The popular press is full of headline-grabbing predictions about the course of the virus and its economic impact. The truth is, nobody knows exactly what the full extent of this looks like.

So to all the practitioners, I urge you to look past the noise. Forget media predictions. Focus instead on the real, practical things you can do to put your clients in the best shape possible for a new beginning.

What do we know about the retail sector? Retail typically experiences strong margins, but must manage its largest overheads, labour and rent, in order to convert margin into profit.

Retailers are challenged to deliver value through astute inventory management; the right inventory at the right price. Great retailers challenge as many of the five senses as possible and engage customers in a convenient and easy-to-deal-with manner. The retail environment was tough enough last year as online channels disrupted retail margins; then along came COVID-19. 

A four-phase approach for tax professionals helping COVID-19 affected retailers:

Phase 1: Contain the harm

In the short term, your job is to help clients understand their cash burn rate and get it down as quickly as possible to a level that increases the chance of survival for as long a period as possible. Consider the Covid challenge accepted by retail operator Flight Centre a 70+ percent cut in monthly outgoings; a radical reconsideration of every dollar spent.

Integral to cutting costs in the short term is helping clients maximise their entitlements under the Government’s stimulus measures including the Boosting Cashflow for Employers and JobKeeper initiatives, mitigating rent under the Mandatory Code of Conduct, understanding the state governments’ support provisions, including grants and concessional loans, and government-supported loans though the banking system. It also means taking a critical look at all other overheads and supporting other short-term sources of revenue to mitigate cash burn.

Phase 2: Decide to stay or go

Ultimately your retail client may need to make that big decision (stay or go) depending on their financial position and their assessment of the pathway of a return to ‘normal’ for retail trade over the coming months and beyond.

Your job is to be there and provide them with the necessary information irrespective of their decision. If they decide to stay, then your job is to undertake a range of financial modelling exercises that will help your client understand their cash burn rate, break-even sales levels and forecast outcomes given a range of sales budgets.

If clients decide to go, then your job is to keep accurate financial data, to allow them to make the right decisions in terms of minimising exposure and preserving personal assets.

Phase 3: Reinvent

For those retail clients that have been able to curtail cash burn and have sufficient resources to have a fresh start, ‘reinvention’ should be the mantra.

The ‘new beginning’ for their retail business will depend a lot on consumer attitudes and where the retailer’s goods and services fit on the needs versus wants continuum. Will the consumer continue to focus their spending on their “needs” or will confidence rebound and see spending on “wants” take off?

It’s reinvention time for the retailer and (like Flight Centre) re-consider everything from products/services sold to staff and locations. Don’t be blinkered into doing the same thing with the same staff in the same location (unless it was already perfection), the current down time is the perfect opportunity to reinvent a business.

“Begin with the end in mind” was one of Stephen Covey’s Seven Habits of Highly Effective People and it’s a great mantra when reinventing a business. Paint a picture of the perfect retail business, then work backwards to the steps that make it a reality.

Phase 4: Hit the gas

If you’ve prepared well in this enforced wind-down period, then your retail clients should be poised waiting for the sign to hit the gas on their re-invented business.

While the engines are warming up, retailers should be using their databases to reconnect with customers; after all, retail is all about people having a great experience. Their customers should be reacquainted with your clients, which will mean judicious spending on product awareness, promotions, and communications around new trading conditions (social distancing and related hygiene measures).

Your job is to ensure the client hits the ground running with the right systems, software, and reporting devised in the reinvention phase.

It’s a busy time for business advisors of all stripes, but it’s also an incredibly painful time for your retail clients. As lockdown conditions begin to ease, they’ll need your guidance more than ever.

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