FORECAST FEATURE Post-Pandemic Retail DEFINING THE ‘NEXT NORMAL’ RETAIL IN THE POST-COVID ENVIRONMENT With the retail landscape irrevocably changed by the COVID-19 pandemic, COLIN POCKLINGTON reveals how the science of retail can assist in overcoming the upcoming challenges. 28 | <strong>June</strong> <strong>2020</strong>
W ith the Australian economy starting on the long road to recovery, we need to identify the retail strategies required to ensure that our jewellery businesses will not only survive but prosper. In order to develop appropriate strategies, we need to have a comprehensive understanding of how the economy, consumer trends, and other factors impact the jewellery industry. Prior to COVID-19, retailing in general – and in particular specialty retailing – experienced a decade of difficult trading conditions, which I outlined in a 2017 article, ‘Prospering in the new normal’. The key issues identified then are still having an impact, and should be considered alongside the new challenges caused by COVID-19. Revisiting the trends in time Following a sustained period of industry growth from 2002– 2010, along with a substantial increase in diamond sales, specialty retailing worldwide was subject to many challenges following the 2009 Global Financial Crisis (GFC). These structural issues are: by COLIN POCKLINGTON • Internationally, gross domestic product (GDP) growth has halved since the GFC – This is a result of lower population growth, the retirement of Baby Boomers, a decline in labour force participation and the fact that technology and innovation have primarily been used to steal market share, rather than drive an increase in jobs – thus failing to add wealth to economies. • In 2017, Australia had the second-highest ratio of household debt to GDP in the G20 group of countries – In 2019, we still held second place behind Switzerland, with a ratio of 120 per cent. • In 2017 the unemployment rate in Australia was 5.7 per cent, and there was a significant rate of underemployment – Underemployment refers to people with part-time or casual jobs who are not rostered a sufficient number of hours in a week to cover their living costs. Figures from the Australian Bureau of Statistics (ABS) show that in May 2019 unemployment was 5.1 per cent and 8.5 per cent of the population was underemployed (they wanted more working hours). However, many economists believe that a large proportion of underemployment is not measured. • Interest rates have been low for many years – There is widespread concern among economic experts as to what will happen when interest rates rise, which they inevitably will at some point. BY THE NUMBERS Retail Insights $27.5bn value of online retail sales in Australia in 2018 Source: Australia Post $2.98bn Annual Australian <strong>Jeweller</strong>y & Watch Sales year ended <strong>June</strong> 2019 Source: See Chart 1, Pg 30 80% proportion of consumer income spent on essentials Source: ABS Report - #5206.0 (2015/16) 300 approximate number of Australian jewellery stores closed, 2015 - 2019 Source: Nationwide’s Retail Database 2 - 2.5% annual wage growth for Australian workers, 2017–2019 Source: Reserve Bank of Australia An interest rate increase from 4 per cent to 5 per cent might not seem much – it’s only 1 per cent – but that means a 10 per cent increase in repayments to the bank each month. • Australian online sales in the year ended 2015/2016 stood at approximately $20 billion, or 6.7 per cent of total retail sales – In the calendar year to December 2019, online retail sales had increased to 7.9 per cent of total sales. An analysis by Australia Post estimated the value of online retail sales at $27.5 billion in 2018. So, while 92 per cent of sales are from bricks-and-mortar stores, that 7.9 per cent figure represents a lot of trips that people aren’t making to a shopping centre. This is one of the reasons why shopping centre foot traffic has been falling for the past few years and why many jewellery stores have been able to renew leases at equal – or even lower – rental rates. • The world economy is currently going through another ‘revolution’ – We’ve had the agricultural revolution, the first industrial revolution, the digital revolution and now we have the technological revolution. This is affecting or disrupting almost every industry and there are more changes in the years ahead, such as artificial intelligence. • Australia’s national accounts indicate that roughly 80 per cent of the average spending by population is on essentials – Consumers are spending the vast majority of their income on rent, debt repayments, food, health, electricity, and so on. That leaves about 20 per cent for ‘non-essentials’ such as jewellery. In my 2017 article, I noted that there had been negative wage growth in real terms since 2012. So, at the same time the cost of ‘essentials’ increased, real income for the average person descreased by about 1-2 per cent. Therefore, the amount of money spent – or available to spend – on non-essentials decreased by about 15 per cent. Since 2017, wage growth has remained flat at 2–2.5 per cent, roughly in line with inflation. • In addition to pressures in the local economy, the consumer is also stressed by international events – World unrest and globalisation had an impact on consumer attitudes in the past; now COVID-19 has added to this stress. In the 2017 article, I also listed five ‘megatrends’ driving retail disruption. The first is rapid urbanisation – 60 per cent of the world’s population will live in one of 60 megacities around the world by 2025, including Sydney, Melbourne and Brisbane. At the same time, there will be 80 billion communication devices in the world and the average person will own five, <strong>June</strong> <strong>2020</strong> | 29
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