THE FUTURE OF RETAIL | Lessons of the Pandemic Jon Bird VMLY&R Australia & New Zealand Paul Zahra, CEO of the Australian Retailers Association (ARA), said that while the retail sector was “shifting out of crisis towards recovery”, the economic recession indicated that “recovery will be slow”. The ARA has called on the Morrison government to extend JobKeeper to selected retailers until February 2021, in order to support vital pre- and post-Christmas trading. Speaking to the Australian Financial Review, Zahra said, “At this stage we’re facing a cliff and we’d prefer a slope. Retailers plan to batten down the hatches anyway, this will give them some relief to get them through this all important trading period.” “The empty shops left by store closures and the inevitable retail collapses we’ll see in the post-COVID-19 environment will increase the power of retailers to extract better deals from landlords” Indeed, many jewellery retailers have been among those to access the JobKeeper program. “We are lucky to be in Australia – I expected this to be a lot worse,” said Michael Sobbi of Linda & Co Designer <strong>Jeweller</strong>s in Sydney. “I think with the government grants and strong online sales, we are riding the wave to normality.” The importance of having a financial buffer in place has been noted by a number of jewellery retailers and retail experts. Steven Jansen, owner SS Impressions <strong>Jeweller</strong>y Design Studio in Perth, advised, “Always have a rainy day fund – in both monetary and materials areas – for at least six months.” Nikhil Jogia, of Jogia Diamonds International, also based in Perth, added, “Businesses, in any industry, that were struggling with weak balance sheets have faced the most trouble. Therefore, now more than ever would be a good time to build a stronger, more resilient balance sheet – whether that means lowering debt or increasing cash levels.” Meanwhile, Van Belleghem emphasises flexibility: “Forecasting and predicting business has become almost impossible. Today it is important to think in terms of scenarios. Be ready to reinvent your business.” Ben Manning, director Utopian Creations in Adelaide, said, “We have been working hard to improve the way our business functions – from improving our POS system right through to renovating our store and adding to our website. It’s an important opportunity to focus on the things that will help my business succeed once the country opens back up.” One of the most significant expenses on retail balance sheets is rent and the COVID-19 pandemic has thrown the longstanding conflict between retailers and landlords into even sharper relief. The charge was led by Premier Investments chairman Solomon Lew and CEO Mark McInnes. As Australia’s largest retail tenant, Premier – which controls brands including Peter Alexander and Smiggle, and operates more than 900 stores – refused to pay rent during the March- April lockdown and has since negotiated to pay only a percentage of gross store sales, rather than fixed rent. Other retailers, including fashion chain City Chic and jewellery retailer Michael Hill International, have reduced their store networks as a result of fruitless landlord negotiations. While smaller retailers may lack the leverage of larger tenants to achieve rent “A lot of change has been compressed into an extraordinary amount of time – a lot of change, from a behaviour point of view, which has been influenced of course by COVID-19 and the fact that people have been locked down in their homes, remote working, having to pick up on digital technologies, forced to change.” Paul Zahra Australian Retailers Association “Landlords need to remember we are in a recession. Playing hardball with tenants during this unprecedented economic period is a lose/lose outcome. It’s a false economy for landlords to try to extract rent from retailers that need their cash reserves to survive the COVID winter.” Dr Philip Lowe Reserve Bank of Australia “Even as the recovery gets under way, there will still be a shadow cast by the pandemic. As a country, we will need to turn our minds as to how to move out of this shadow. A reform agenda that makes Australia a great place for businesses to expand, invest, innovate and hire people would certainly help.” reductions, the Australian Financial Review recently noted, “The empty shops left by store closures and the inevitable retail collapses we’ll see in the post-COVID-19 environment will increase the power of retailers to extract better deals from landlords”. It’s a point that is particularly pertinent in the case of shopping centres. “Landlords need to remember we are in a recession. Playing hardball with tenants during this unprecedented economic period is a lose/lose outcome. It’s a false economy for landlords to try to extract rent from retailers that need their cash reserves to survive the COVID winter,” the Sydney Morning Herald quotes Zahra as saying. For jewellery retailers, buying groups can provide assistance in seeking rent reductions, as well as financial strategies for managing stock. Swift shift online Omnichannel retailing is hardly a new concept, yet the tactile appeal and large costs associated with jewellery have seen the category lag behind others in selling through digital channels. “The e-commerce side of many, mostly independent jewellery businesses is not nearly at the level of where it should be,” said Jogia. “I think many jewellers are still stuck in the 20th Century and think the only selling channel should be in-store – or they don’t want to risk competing with long-established online players.” Yet perhaps the most notable trend to emerge from the pandemic was the shift to online retail, particularly in Australia and the US. “E-commerce penetration in the States went from 16 per cent pre-COVID to 27 per cent post-COVID. In Australia, there was an even more dramatic up-tick because I think we were a little slower – 10 per cent pre-COVID, to 24 per cent,” Bird said. 42 | <strong>June</strong> <strong>2020</strong>
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