Retailers facing fight for life scenario

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AUSTRALIAN retailers are confronting “the fight of their life” in 2020, according to Deloitte, while shopping centres landlords face a potential wave of vacancies in a post-COVID-19 world and will need to work together with retailers to appeal more to customer requirements than ever before.

According to Deloitte Access Economics’ latest Retail Forecasts, real retail turnover growth is expected to fall 1.4% in 2020, making it the worst year on record.

The sector had already experienced headwinds before the COVID-19 outbreak, forcing Australian retailers including Colette by Colette Hayman, Jeanswest, Bardot and 170 year old department store Harris Scarfe into administration, and fast-tracking space optimisation by the major department stores the extended to asset sell offs by David Jones.

That was before social distancing measures halted trade and retailers shut down stores.

After a surge in growth over the March quarter – including a record month of March fuelled by panic buying of toilet paper and staples – retail spending is expected to contract by 4.0% in the June quarter as the COVID-19 outbreak and associated restrictions limit spending.

There have also been significant swings in consumer ability and willingness to spend during 2020, Deloitte said, and those swings may continue as the year goes on. From a high in March, preliminary data from the Australian Bureau of Statistics showed retail turnover lurched to record contraction in April, down by 17.9%.

Deloitte Access Economics partner, and the report’s principal author, David Rumbens, said 2020 has been a tumultuous year for retailers.

“We’re not even halfway through, but across the whole sector we expect calendar 2020 to register a record breaking fall in real retail sales.

“Consumer willingness to spend will likely be buffeted by a number of different factors, meaning that one month’s trading experience may be a terrible guide to how the year as a whole pans out.”

Consumer confidence has slumped and job losses have increased, and while the easing of restrictions and large fiscal stimulus program provide some support, retail is likely to face headwinds on a long recovery path.

“But while the average is dire, there may not be many retailers performing at the average – many will fare much worse, while supermarkets, pharmacies and hardware, amongst others, have been experiencing a golden run.”

Deloitte said the year would likely be broken into six phases, beginning with the pre coronavirus normal, albeit as parts of the country were dealing with devastating bushfires.

That followed with the March stock-up as COVID led to widespread restrictions and  consumers entered a massive stocking-up cycle, before the April slump.

Retail spending in May rebounded, helped by pent up demand as health concerns abated and consumers were given the green light to go back to shopping centres. A period of recovery growth will temper re-opening frenzy and will represent a “COVID normal” period, where sales are buoyed by an improving economy, albeit picking up from a very deep trough, and which continues to benefit from income support measures such as JobKeeper, deferral of mortgages, and early access to super.

However, September is “already flashing red” for many retailers as the month for the intended end to JobKeeper, which has supported a number businesses.

“That may see the last phase for retail in 2020 as a fairly sombre one, leaving many retailers to dream of the support they received when COVID was at its peak.”

Rumbens said that the recovery path for retail spending was precarious.

“Short-term risks from rising unemployment and reduced willingness to spend will linger, especially as fiscal stimulus programs are unwound in September,” he said.

“More worrying is the longer-term risk from weak population growth. Migration has been an important support for retail spending over the past decade, but with borders closed there is potential for this tailwind for growth to turn into a headwind.

Despite spending per person at department stores increasing by 36% in May, according to credit card research, Deloitte expects department store spending to suffer from reduced employment, confidence, lower population growth and wealth. David Jones observed a 35.8% fall in March and April sales and had already flagged that it will accelerate its move to reduce floor space by 20% by 2025 by closing some of its 48 stores. Overall sales are expected to fall 5.2% in 2020.

Online retail as a percentage of total Australian retail turnover had been trending upwards, rising from 5.7% in March 2019 to 6.6% in February 2020, and reduced access to bricks and mortar stores during COVID-19 accelerated the shift. Online retail rose to 7.1% in March 2020, before climbing steeply to 10.0% by April.

Data important for landlords

Jon Sully, partner and founder, BDC Property Partners, said that the next six months would be pivotal for shopping centres and retailers to work together to deliver offerings tailored to their local clientele’s interest and spending habits in order to survive and thrive.

“What retailers and shopping centres need right now is data and insight into their customers’ spending preferences and behaviours in order to make informed decisions over the next six months that will put them in a good position now and three years down the track.”

Sully said consumers had changed their spending habits in two main ways as a result of the pandemic.

“Firstly, they’re buying online and local rather than travelling to shop and spend. Secondly, we’re seeing pandemic ‘revenge buying’. Customers have been isolated at home for months have been buying up big on things like games and sporting equipment.

“In addition, we’re facing a potential customer bubble once JobKeeper ends. Consumers will likely again change their shopping habits and both retail tenants and landlords need to be prepared to walk the path to recovery.”

Sully said that landlords would need data and insight to look at new thinking, spending and consumer behaviours, allowing them to look into individual retailers and their performance, and new customer habits such as driving rather than taking public transport.

He said there may be a re-emergence of the local shopping strip over the next six months, and away from bigger shopping centres or CBD malls as shoppers look to purchase locally, as people want to physically travel less for safety or to support their local retailers. This is where the data will come in to support decisions.