Will Latest covid19 closures kill retail?

Every single day runs havoc on the retail industry as restrictions go more and more strict.

Already struggling retail sector had worse days coming. Who knew things will be much worse for the shops who are already struggling to sell thanks to the growing eCommerce sector.

Tougher measures have kicked in, with Australians forbidden from going out in public with more than one other person and warned against shopping for anything but essential items, among other restrictions.

The new rules are clearly designed to protect the public and save lives – but many also believe it could prove disastrous for Australia’s already battered retail industry.

And it is feared some individual retailers forced into a “temporary” shutdown as a result of COVID-19 may never reopen.

‘ANOTHER BODY BLOW’

AMP Capital chief economist Dr Shane Oliver told news.com.au the latest restrictions would be yet another shock for the ailing sector.

“Retailers were already struggling, and this is another body blow for them,” he said.

“We were already hearing stories of retailers folding over the last year, reflecting slower growth in the Australian economy.”

Dr Oliver said some businesses – such as coffee shops, restaurants, gyms and hotels – would be especially likely to “bounce back” once the outbreak was contained, provided they received financial support in the months ahead.

But he warned retail would take longer to recover as it had already been struggling in the first place.

And he said isolated Australians would be increasingly shopping online, which could cause further problems in the longer term.

“This will reinforce the trend of online shopping, like the very strong Australian dollar did eight or nine years ago,” he said.

“That opened Australians up to global choice on the net, and we started buying more online and internationally.

“More and more Australians will now move to online purchases, and while some retailers that already have a good online presence to complement their physical stores will benefit, those that haven’t will struggle more.”

‘RETAIL APOCALYPSE’

Shopping centres are quite. Not just the retail stores but think of the support staff, cleaners and those food courts. There are a large workforce around any large business.

Queensland University of Technology retail expert Dr Gary Mortimer told news.com.au he had been visiting shopping centres daily and had seen more and more retailers voluntarily close their doors over the past fortnight as foot traffic dried up.

He said the Prime Minister’s latest restrictions on movements would put “further downward pressure” on retail spending, which had already been devastated by what some commentators had dubbed “Australia’s retail apocalypse” earlier this year.

“At the start of the year we saw a number of big brands going into voluntary administration – and that was well before the impact of coronavirus,” Dr Mortimer said.

“I suspect some brands, particularly within the clothing and footwear sectors, may not even survive the next four weeks.”

Dr Mortimer said the next challenge would be how retailers responded when they were able to reopen, and many would be plagued with issues surrounding inventory clearance.

“Shops like Myer, which is now closed, would be sitting on tens of thousands of Easter products … which will be worthless after Easter,” he said.

“And another challenge for fashion retailers is that this is the traditional mid-season clearance sales period, which will not take place – that means if they’re sitting on winter coats and other inventory, they will have lost all this time to sell it.

“When they do reopen, what will happen is that many retailers will move directly to deep discounting to clear their backlog of inventory, and of course the next thing to ask is are retailers going to be in a financial position to forward buy their spring ranges of clothing?”

He said about 65 per cent of stores at the normally buzzing Westfield Chermside in Brisbane’s inner north had been closed yesterday afternoon, which showed retailers were crying out for a “clear message” from the Government to close all non-essential retail and shopping centres.

“Everything was in darkness, because what is the point of opening now? I think ultimately retailers are just looking for that announcement so they can tell their team with certainty ‘this is a government directive, not a decision from the board or management’,” Dr Mortimer said.

“Team members are trying to remain upbeat and happy with the few remaining customers coming in, but I would imagine they’re feeling quite stressed themselves with no certainty whether they will have a job or not at the end of the week.

“Stores that remain open have teams that are incredibly stressed as well as a stressed leadership and management team that don’t know whether it is a smart move to close or not.”

Governments millions of dollars of stimulus package does have some hope for retailers and small business but still it’s not going to help them fully recover.

Dr Mortimer said the Government’s multibillion-dollar stimulus package – which includes $750 payments to 6.5 million Australians that will begin landing in accounts from tomorrow – would likely not make a significant difference to the retail industry.

“The public is genuinely concerned and anxious, so I think these stimulus packages will only go towards paying debt, bills and essentials – people will be paying the rent and the mortgage, putting fuel in the car and food on the table, and at this point consumers aren’t looking to buy clothing, electronics and things like that,” he said.

He said while some retail sub-sectors such as supermarkets, electronics and stationery stores were doing well at the moment as Australians stocked up on staples and office equipment as they worked and studied from home, other areas would be increasingly “challenged”.

“Clearly some clothing, footwear and accessories brands might not survive this challenging period as well as some smaller, independent bistros, cafes and bars,” he said.

He added that many small business owners would struggle to pay their business bills as well as cover their own rent or mortgage and could end up going into receivership.

Dr Mortimer said while some retailers were on a hiring blitz of temporary, casual staff to cope with the recent spike in demand caused by the virus, this may give people “false hope” when it came to our overall unemployment rate.

“They’re there in the short term to help deal with deliveries and replenishing stock, but when everything reopens and the retail demand begins to normalise, there will be less demand for that workforce,” he said.

Some retail stores are having trouble with their landlords for the commercial property rent agreements. Earlier, PM Scott Morrison asked both parties to sit with each other and work out thing as both will need each other in future.

It is a mutual understandind and it is about how both struggling arties work out in a way that suits both of them.

Retail Food Group (ASX: RFG) has come out swinging against its commercial landlords claiming an inherent power imbalance makes the process of negotiating rent relief impossible.

According to RFG executive chairman Peter George the company is frustrated by the lack of progress when dealing with landlords and the unwillingness he has seen from lessors to provide meaningful assistance.

This is despite the Federal Government encouraging landlords and tenants to come to agreements and a national Code of conduct crafted by The National Retail Association (NRA), Australian Retailers Association (ARA), the Pharmacy Guild of Australia (PGA) and the Shopping Centre Council of Australia (SCCA) intended to give landlords and tenants some guidance.

“The National Cabinet has encouraged landlords and tenants to engage and agree on commercial arrangements that can see both through this crisis, and has provided a list of principles which should underpin those discussions,” says George.

“Whilst the key elements of this guidance are conceptually sound, they fail in terms of practical application due to the significant power imbalance which exists in favour of landlords. In reality, it is our experience that tenants have very limited bargaining power to drive meaningful and timely outcomes in these circumstances.”

Further, the chairman says landlords simply deferring payments of rent for RFG’s franchisees, who run food and beverage outlets like Gloria Jean’s, Brumby’s, Pizza Capers and more, will only serve to delay a significant financial impact.

“It is abundantly clear that the reduction in foot traffic attributable to government restrictions intended to combat the coronavirus has materially reduced the benefit otherwise derived by RFG and its franchisees from their leases within shopping centres,” says George.

“Deferral of rent in these circumstances is simply unacceptable, and will achieve nothing for our franchise network other than to delay the adverse financial consequences arising from the current situation.”

Ultimately, George believes the Federal Government must step in to address the considerable uncertainty faced by retail tenants nationwide.

“Where the government’s objective is to hibernate business so that it is able to contribute to restarting the economy and preserve jobs, RFG considers that robust and urgent government intervention is necessary to address fixed cost bases such as occupancy costs, and limit the uncertainty that is necessarily influencing current decision making,” says George.

The plea for government intervention comes as Retail Food Group announced around 90 domestic franchisees have chosen to temporarily close their stores.

The main impact on franchisees has come from a lack of foot traffic in stores as the population dutifully self-isolates.

The situation is most evident in shopping centres where RFG franchisees have experienced 50 per cent reduction in customer count.

Ultimately franchisees have seen a consistent and increasing decline in revenues compared to this time last year and have shut up shop because trading conditions have become untenable.

Internationally temporary closures because of government restrictions have increased to 481, with a further 141 outlets limited to take-out orders. Just 51 outlets continue to operate normally but are subject to increasingly difficult trading conditions.

To support franchisees RFG has implemented a number of measures to support franchisees and preserve the long-term sustainability of its network.

“The steps we have taken differ by brand system, are directed at those franchisees most in need, and include the waiver or reduction of certain fixed and percentage based fees, waiver of fixed royalty and or marketing levy ‘floors’ so that these are calculated solely by reference to a percentage of, albeit declining, sales, and the deferment of outstanding debt and RFG provided finance,” says George.

The trading update comes just days after the group announced it would be standing down or reducing the working hours of the majority of its staff.

RFG employs around 500 people directly, but there are thousands of staff employed by its franchisees around the country.

The company does not actively track the total number of staff employed by the franchisees themselves. However, in a submission to the Franchising Code of Conduct Inquiry, which released its findings in March last year, the company claimed the network employed approximately 15,000 team members across the country.

So this is the story of retail in Australia so far. A lot going on and retail seem to be struggling more than other businesses or seem to be one of the first and most affected industry due to covdi19.