The Worrells’ perspective.

The recent events of the bushfires and COVID-19 have led to catastrophic economic conditions for Australian businesses. While no industry has been left untouched, the retail sector has been particularly hit hard by these crises. Restrictions on movement and interaction has caused a significant acceleration in changing consumer behaviours; and we have seen several retail chains enter into voluntary administration, undertake an informal restructure, or simply close down having failed to adapt to these changes.

As the largest appointee insolvency firm in the SME market in Australia, the Worrells partners have access to dialogue with SME business owners, providing us with real-time insights into the challenges retail businesses are facing and the emerging trends. They are as follows:

  • A changing conversation.
  • Efficient business structures are the go.
  • Not everyone’s experience is the same.
  • Overcoming challenges leads to success.

 

A changing conversation

Many of the enquiries we’ve received from SME business owners suggest that the retail sector has suffered from the lack of foot traffic, supply chain disruption, and a significant drop in cash flow. These major factors influenced their decision to reach out for assistance prior to the COVID-19 crisis.

Entering the COVID-19 crisis, the conversations we held with these retail business owners shifted to them focusing on managing the severe impact of having to shut down, their cash flow needs, and accessing the various government stimulus support initiatives.

We also saw some of these businesses turn their mind to improving or even developing a greater online presence. Certain social media platforms like TikTok boomed during the shutdown, growing its user base significantly. Major online ecommerce platforms such as Amazon saw huge growth in sales.

 

Efficient business structures are the go

As with companies in every industry, employing a streamlined business structure and efficient business processes is an important part of achieving success. In the retail sector, which is labour intensive, success in overcoming consumer volatility and generating a profit is down to a business structure that incorporates efficiencies generated by technology. These may include inventory management systems, which reduce warehousing and supply chain costs; customer-operated point of sale (POS) systems; in-store mobile technology, as well as Customer Relationship Management (CRM) and data-mining systems to ascertain consumer preferences.

 

Not everyone’s experience is the same

Several of our professional colleagues who have clients in food, entertainment, electronics and home improvement/ gardening retailing noted that their clients reported a boost in sales and revenue during the lockdown period—a result of panic buying and transition to working, exercising and self-entertaining at home. These firsthand accounts were supported by ABS statistics that saw year-on-year numbers increase by 16.5% in April 2020 and a lessor 5.3% in May 2020.

As the numbers normalize a little, we expect the overall sales to return to historical numbers and growth projections. Once sales do normalize, what is likely to change is the way consumers purchase retail products. We expect a greater percentage of customer buying online rather than making their purchase in bricks and mortar stores.

 

Overcoming challenges leads to success

The challenges businesses have faced during this period have forced them to become inventive and agile. The lessons directors and owners have learnt in navigating the current circumstances will be carried on into the future, something we feel will permanently change the way businesses operate within the retail sector.

At Worrells, we expect a significant number of SME retail businesses to need some restructuring as a result of the bushfires and COVID-19 events. What is difficult to predict though is the success of the government support packages and consumer confidence. With unemployment expected to rise, we will see an overall decline in discretionary spending that will impact retailers that fall into that category. It is important that business owners and key stakeholders (such as financiers) are monitoring cash flow carefully and looking for trends. Underlying all this will be the continued uncertainty as COVID-19 impacts both the local and global economies, both through consumer spending habits and supply chains disruptions.

 

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