espects, the pandemic has rapidly accelerated five years of disruption into a few months. While many retailers have benefited from the tailwinds of this acceleration of trends, others will need to act quickly and repurpose their business to adapt to the new retail world. In theory, 2020 should have been a painful year for retailers. Instead, retail collapses hit record lows and the wave of insolvencies many predicted never occurred. What’s driving this? The government introduced four stimulus measures that supported retailers and softened the pain of the pandemic. We like to call these measures economic morphine. Economic morphine The first was the move to suspend insolvent trading laws in March, which provided relief for directors at risk of personal liability for insolvent trading. The government initially put the laws in place for six months, but at the time of writing, they had been extended until the end of the year. Practically, this temporarily enabled retail boards to weather the storm during the peak of the pandemic without fear of being personally liable to pay the debts of their businesses if they were forced into liquidation. While this provided peace of mind for many directors, their usual obligations continued to apply, including the duty to act honestly and in the interests of stakeholders. Practically speaking, the suspension of the obligation on directors to prevent insolvent trading took away the burning platform that drives many directors to appoint voluntary administrators.Retail trade creates more than 1.3 million jobs across Australia, making it our second-largest employer. While the rise of online continues, most of these jobs are reliant on bricks-and-mortar stores. As retailers shut their doors during the lockdown, the government’s highly publicised JobKeeper program was pivotal to the survival of many traditional retail models and keeping staff employed (or at least paid). This program was set to run until the end of September 2020, later extended to the end of March 2021, albeit with changes to eligibility and rates. As costs of doing business revert to normal, retailers will feel the pinch if trading revenue remains subdued or they are unable to recapture market share lost during the pandemic due to new consumer preferences.The third is the government’s Covid-19 Superannuation Early Release Scheme, which provided Australians with access to up to $10,000 of their superannuation in both FY20 and FY21. At November 15, 2020, more than $35 billion had been made or approved. This, somewhat unexpectedly, created a sugar-hit for retailers, with estimates that nearly two-thirds of these payments were spent on discretionary purchases. While this injected much needed to many retailers, the scheme also garnered some adverse media attention as liquor and online gambling spend soared.The government announced a mandatory code of conduct for commercial tenancies to support SME’s affected by Covid-19, applied across the period the JobKeeper program is operational. Simply put, the objective is for landlords and tenants to share the financial risk and cash-flow impact of Covid-19 in a proportionate, measured manner. This code of conduct was enshrined in some state laws and created a platform for commercial discussions between landlords and tenants that would have otherwise sent many retailers to the wall. Dry supply The economic morphine is set to run off in the middle of the year, and retailers will have to snap back to reality as the supply runs dry.    Retailers will have to deal with this while other stakeholders also wind back their support. Lenders provided repayment deferrals, and there was access to fresh capital with record capital raisings to support retailers through the thick of the pandemic. As trading hits its new normal, lender support will likely continue, but there will be an increasing obligation to work together to manage appropriate facility limits.  Support from creditors will also look very different this year. The relaxation of insolvency laws slashed the number of winding up proceedings, and the ATO took a softened approach to debtor collections during the pandemic. As trading normalises, we expect this will change and there will be increasing pressure on debtors to arrange repayment of funds. Likewise, suppliers who have been supportive of retail customers will be looking to recover cash as they address their financial affairs. Landlords face a very different challenge. The pandemic thrust retail rents into the spotlight with retailers are seeking more sustainable rents or rent based on turnover. This will mean negotiating an outcome that is palatable for both retail tenants and landlords, which is easier said than done. What does this all mean for retailers? As business normalises and traditional behaviours return, retailers will be navigating an uncertain environment, which will require a focus on managing cash flow and working capital. Retailers will need enough cash to manage uncertain trading conditions and the winding back of support. Product and range planning will be even more challenging due to shifting consumer trends as retailers look to create the right product mix to produce targeted sales and margin outcomes. Retailers will need to decide on which trends will stick and place their bets. All the while, retailers will also need to juggle health and regulatory issues to meet compliance requirements and instil trust in their customers.   It certainly won’t be an easy year. While we have seen few insolvencies and restructures in Australia, a different story is playing out overseas Across the globe, insolvency regimens are being used by retailers to restructure their businesses, reduce costs and allow a greater focus on online, digital and the consumer. According to S&P Global Market Intelligence, retail bankruptcy filings in the US reached the highest level in a decade in 2020. Similarly, in the UK, retail insolvencies hit a five-year high and included the likes of Arcadia Group, the owner of Topshop, filing for insolvency in late 2020. Is this a proxy for what will happen in Australia? The reality is that consumers are currently cashed up. Savings rates hit historic highs across the country in 2020 as the economic morphine washed through the economy and people were forced to stay home. As the supply runs dry, retailers uncertain of their future will need to consider whether a restructuring option is appropriate to recalibrate the business and create a sustainable model for the post-Covid environment. While directors remain reluctant to do so, the administration process has proven to be a valuable restructuring tool to reset the boundaries for retailers. If reluctant, the Safe Harbour legislation provides a framework for restructuring outside formal insolvency, while protecting directors from personal liability for insolvent trading if the company is undertaking a legitimate restructure. Forging on We believe 2021 will be the most unpredictable year we’ll have had for generations and will challenge many retailers who survived Covid. Retailers will be navigating an uncertain environment due to shifts in consumer behaviour and the winding back of support, which will place increased pressure on cash flow and working capital. With uncertainty comes risk, and we believe those who bet big will come out on top. Of course, there are retailers that will need to reset the boundaries to survive, and there are a range of tools available to do so. The key is to ask for help and to do it early.  This article was published in the 2021 Australian Retail Outlook report sponsored by KPMG. To download the report, click here.