What retailers need right now

An untold number of retailers could become insolvent in a matter of weeks unless the Government, landlords and suppliers act now to help cut costs in the face of the escalating coronavirus pandemic.

With sales down by as much as 80 per cent in some businesses, and broader shutdowns of all non-essential services looming, industry leaders are calling for significant reductions in rent, wages and other bills to help retailers stay afloat.

“There’s not a lot of time. Jobs are already being lost,” Kate Morris, co-founder and executive director of online beauty business Adore Beauty, told Inside Retail Weekly.

Just over a week ago, Morris created a group chat on Slack for e-commerce businesses to share how they’re responding to the rapidly evolving crisis. Her ‘war room’ now has more than 180 participants.

“We have a better shot coming out the other side if we stick together and help each other out,” she said.

Buy some time

One of the top concerns for retailers right now is rent.

Stephen Spring, a retail leasing expert, is working with small business advocacy group COSBOA to provide free mediation services for tenants and landlords. His biggest concern is the possibility of tenants getting locked out or having their bank guarantees drawn down if they can’t pay their rent.

“If the landlord keeps [enforcing] the lease in a situation where the business has no profits, you’re going to see a significant increase in administrations and liquidations and businesses going dark,” he told IRW.

“We’ve asked the Government to be tenant-friendly in these circumstances…to buy some time for tenants and landlords to have a good discussion.”

While the major landlords have not spoken publicly about reducing rents, IRW understands some retailers have successfully negotiated lower payments – at least for the short term.

But Dominique Lamb, CEO of the National Retail Association, said retailers shouldn’t need to deal with renegotiating lease agreements right now.

“Not everyone is capable or has the knowledge to say, ‘I require a rent reduction’,” she told IRW. “I think there need to be subsidies for businesses when it comes to these costs.”

That support may soon be coming, according to Russell Zimmerman, outgoing head of the Australian Retailers Association.

“It is our understanding that the Government at the present moment is reviewing retail leasing, and we’re hopeful of hearing something very shortly,” Zimmerman told IRW on Monday evening.

Cash is king

Simply reducing rents, however, won’t solve the cashflow problem that many retailers will start facing in the coming weeks, according to Brian Walker, founder and CEO of Retail Doctor Group.

“One thing I’ve noticed straightaway is the liquidity of many of these businesses,” he told IRW. “They can survive one month of [sales] being 30 per cent down, maybe two or three, and then they don’t have a business.”

Cashflow is now much more important than having profitable sales, Walker said, and retailers will need to start discounting if that’s what it takes to generate sales.

“In this survival period, it’s all about having cash. Cash is king,” he said.

Government can help on this front by keeping employment as high as possible, according to Peter Burn, Ai Group’s head of policy.

“The more people have money and are in jobs and spending, the better,” he told IRW.

This becomes complicated, however, by the possibility of sweeping shutdowns, which may be necessary to stop the spread of the coronavirus.

On Sunday afternoon, the NSW, Victorian and ACT Governments laid out plans to restrict all non-essential business activity, except for supermarkets, pharmacies, convenience stores, petrol stations and freight and logistics.

But they later walked back these plans to stay in line with the Federal Government’s more limited ban on pubs, cinemas, casinos and other entertainment venues, and restriction on restaurants and cafes to takeaway and home delivery orders only.

If the shutdowns do occur, it will likely lead to layoffs, as many businesses will be unable to adapt.

“Consumer sentiment will worsen and people will be inclined to spend less,” Burn said.

To counteract this, the Government will need to provide generous income support to people who lose their jobs. This could also encourage people who still have a job to spend more, since they might be less worried about the possibility of unemployment.

One thing that cannot happen is an increase in the minimum wage.

“In this crisis, the issue of whether people in work get a couple extra dollars per week is trivial,” Burn said. “Quite frankly, it would just raise costs. The employment sensitivity in these times is very important.”

Hibernation mode

While rent and wages are most retailers’ two biggest costs, they also pay countless suppliers to host their e-commerce site, process payments, offer buy-now-pay-later at checkout, provide customer service, deliver their parcels and much more.

Adore Beauty’s Morris said retailers also need these businesses to help by reducing their fees.

“If they really believe in this industry and want to see their customers [retailers] come out the other side – now is the time to do something,” she said.

But what if landlords reduce rents across the board, the Government keeps as many businesses open as possible, wages don’t increase a single cent, suppliers reduce their fees and retailers still can’t break even because consumers simply aren’t spending enough?

Morris believes the Government needs to offer a ‘hibernation’ option for businesses that can’t trade through the coronavirus, such as restaurants and hair salons.

“They need to be able to go into hibernation mode – switch off all the lights, not pay their bills, but know their staff will be taken care of until we come out the other side of this. Then they can reopen without having gone into huge amounts of debt,” she said.

Just the beginning

The global pandemic has hit the retail sector especially hard. After the outbreak shut down factories in China last month, global supply chains remain disrupted and international travel has ground to a halt.

Australia’s consumer confidence is at its lowest level in a decade, and the unemployment rate could reach 7 per cent, or roughly one million people, by October, according to the latest forecast by Westpac.

Meanwhile, NAB expects spending to plummet in March for most categories except the supermarkets, as consumers shift their dollars to food items and other essentials, such as toilet paper.

The Federal Government has promised to deliver a $189 billion stimulus package, including tax rebates for small businesses and nonprofits and more money for Newstart recipients, but with the recent trading restrictions, and threat of a more comprehensive shutdown of all non-essential services, much more support is required.  

“This is the fight of our lives, and we’ve been given no time at all to prepare for it,” said Morris.

This story first ran in Inside Retail Weekly. Given the current crisis, we have decided to unlock all premium content related to COVID-19. If you would like to support Inside Retail, please consider subscribing here.