Although the health crisis is far from over, Australia appears to have fared better than many other countries in blunting the outbreak so far, and is well advanced in researching treatments and a preventative vaccine.
However, the country has not escaped an economic meltdown and it’s now facing an uncertain future that will be shaped by political, social, economic, cultural and technological changes, as well as global adjustments in the aftermath of the pandemic.
The economic and social recovery will take a long time, and Australia and Australians will not go back to the way things were in the days before the coronavirus emerged in Wuhan, China.
This experience has tested the values, priorities and attitudes of Australians, shaking our complacency and confidence in our financial and job security.
A slow downhill spiral
In the past five years, sluggish economic growth was attributed primarily to low consumer confidence and, in the case of the retail industry, new global entrants to the market and online shopping.
However, consumer behaviour was changing as the cost of services increased, incomes stalled, new jobs growth was increasingly in part-time positions, household debt was climbing and housing affordability became more difficult.
Marriage rates and the size of families have been decreasing as couples have been having kids at an increasingly older age, while the surge in apartment living reshapes lifestyle choices tilting discretionary spending towards experiences, including travel, rather than possessions.
A possible recovery
In the aftermath of the coronavirus, these trends are likely to strengthen, as consumers work to restore their financial security with more conservative and cautious decisions, prioritising saving and paying down debt rather than spending.
Online shopping will increase and there will be a strong preference, at least in buying intention, for locally made products and retailers.
A recovery in retail spending will be heavily dependent on the level of confidence and certainty that governments provide as Australia exits the health crisis and on emergency economic support programs.
The scale of the economic rescue packages will leave government budgets in deficit or severely constrained for at least a decade and will inevitably result in higher taxes and charges.
The immediate government focus has been on lifeline packages to save the economy from catastrophic collapse, but further investment will be required to aid recovery at a time when revenue from company and personal income tax and GST will decline.
There is also the likelihood that a short-term fall in revenue derived from mineral export sales, particularly to China, and a longer-term fall in prices for iron ore will adversely impact on government budgets into the recovery period.
At the same time, government will face higher outlays for unemployment, social security payments, health services and drought, bushfire and flood reparations from a devastating summer.
What it will cost
Australian economists project an unemployment rate of around 10 per cent emerging from the pandemic crisis, a figure which is probably optimistic with many businesses and jobs gone forever despite the stimulus packages.
The worst case projection for a peak in unemployment is 20 per cent by University of Kingston economist, Steve Keen, in a forecast published on April 4.
The most optimistic economists from Industry Super, Melbourne University and Victoria University forecast a Federal Government budget deficit of $55-60 billion for the 2021 financial year, while the most pessimistic estimates run to $300 billion.
The average prediction of the Federal deficit by 15 leading Australian economists for the next financial year in early April was $140 billion.
Economists expect the Federal budget deficit for the current financial year to be around $87 billion, a figure that appears somewhat hopeful given the scale of the Federal Government stimulus packages of the past month.
While the financial outlook is challenging, there is a prospect of reform in inter-government responsibilities, an effective overhaul of regulations and possibly even some tax restructuring.
Governments and economists recognise that not all businesses will survive the economic meltdown and many businesses, including retailers, will be forced to change their business models.
Long-term impact on rents
The Federal and State government-enforced mandatory code of practice to provide rental relief to retail tenants and the rent strike initiated by Solomon Lew’s Premier Retail are likely to have long-term implications for retailers and the shopping centre industry.
A retail-driven push for lower rents, as well as the contraction of store networks by major retailers and many chains and financial collapses of a string of retail brands in the past three years, have put significant pressure on most shopping centre landlords to moderate rent increases or reduce rents.
In a trend that is likely to accelerate, centres have been reconfiguring their tenancy mix with specialty apparel being one of the declining categories.
The evolution of shopping centres post-coronavirus will continue the re-jigging of floorspace, including the conversion of retail tenancies to other uses but with most, if not all, of those uses signed up at lower rents than prime retail.
The objective of recruiting those alternative uses will not be to just fill vacant floorspace, but to also boost customer foot traffic because the potency of traditional non-food retail anchors, such as department stores and discount stores, has diminished.
Lower income growth, or potentially a declining rent profile, will translate to lower asset valuations, again an issue for some shopping centres in the past 12 months.
Reshaping the landscape
Notwithstanding the government business support packages, the coronavirus disruption will see more retailers enter administration and other retailers shrink their store networks, again in a continuation of a trend over the past few years.
Among the casualties will be some of the franchise outlets that have dominated food courts but have been buffeted by broader sector challenges in the past two years.
Credit is being preserved as part of the economic stimulus packages, but funds are likely to be more difficult to access in the recovery period, potentially triggering mergers, takeovers and acquisitions with the future of Myer and David Jones as standalone businesses under close investor scrutiny in Australia and South Africa.
It is not suggested that retail brands will disappear but that individual sites will close if they are losing money or under-performing, as retailers ensure they have a sustainable business.
The fine-tuning of retail business models will see increased investment into the development of online platforms and changes in advertising and promotional strategies.
The invasion of international retailers to the Australian market will, at the very least, pause for several years, as home markets demand more investment and head office managements assess the performance and exit decisions of the retail brands that have opened stores in Australia.
In further fallout from the coronavirus crisis and its repercussions for retailers, the number of people employed in the retail sector will be expected to fall and supply chains will be revisited, particularly in response to consumer and political sentiment about Australia’s reliance on China and in response to the buying power of the dollar.
The imperative of tighter cost control for retailers could well demand shorter trading hours for many retailers with industrial award wages, penalty rates and entitlements potentially revisited as part of a broader review of economic productivity and sustainability.
The retail industry will be changed and streamlined after the economic turmoil ignited by the pandemic, but trusted brands that relate and respond to changing consumer attitudes and behaviour will survive and, in the medium to long term, prosper.
This story is from the May 2020 issue of Inside Retail magazine. Subscribe here.