We’re just one week away from the traditional Christmas trading kick-off and all the signs are showing we have a reason to feel optimistic about the year ahead…cautiously optimistic.
This week we had ‘Donut Day’ as Victorians are calling it, with zero infections and a restored right to shop in Melbourne. Christmas has always been our most important retail trading period. But there has never been so much pressure on this last quarter to perform – not only on a sales level, but as an important key to turning our national confidence around.
Not to mention, our retail community must extract that Christmas performance from their stores with a number of handicaps…with layers of retail safety protocols in place, less customers allowed in store, wobbly consumer confidence, an injured supply chain and in Victoria the shortest possible windows to get stores ready.
I wanted to share some of the key questions our community, investors and the media are asking us – the first one being the road to recovery.
How far away is a recovery?
‘Are we there yet?’ is going to be a very popular question amongst the media and analyst community in the coming year. We are a few steps along a path to a very long retail recovery:
It would be fair to say this this week is the week the retail (and economic) recovery in Australia can truly begin – with Victoria as one of the last pieces in the pandemic jigsaw puzzle.
What Covid has thrown into focus is that Victoria really is the leading national distribution point and it not only hurts supply chains when it’s in lockdown it hurts national sentiment and knocks confidence.
Getting the shops open before Christmas is one, obvious step. Winning back and maintaining both consumer and investor confidence is another. Christmas performance will certainly be a bellwether for our broader retail fortunes.
The retail recovery will unfortunately be a long one – although not everyone will travel at the same pace. We are looking at a two-speed recovery within retail – with essential services retailers (supermarkets, hardware, homewares and the like) recovering much faster than those in discretionary categories along with a much slower recovery for those in CBD or tourist locations.
What makes us optimistic?
It is going to be unquestionably tough – to share a few of the numbers we’ve heard recently:
- Victorians have seen 220,000 jobs lost overall – an estimated 1,000 jobs a day according to the Prime Minister, and of course thousands of businesses
- In recent months, we predicted (as did hospitality) that up to 50% of SMB retailers would struggle to make it out of the other side of this pandemic in Melbourne – most particularly in the Melbourne CBD.
- Mental health services have been up hugely around the country, but up 31% in Victoria
- From the end of December, JobSeeker which has been fuelling a lot of the retail spend could return to $40 a day.
But putting Victoria’s performance to one side, here’s some of the reasons I believe we can feel a little more optimistic about the numbers in the coming months.
- We’re already ahead – whilst our retail rebound may have slowed in September, retail is still showing consistent year on year growth everywhere but Victoria. We need to let that sink in. Many things are surprising in a pandemic, but year on year sales growth in a pandemic … that’s impressive. In WA the state is in strong economic growth.
- Of course, much of that has been driven by the extra cash that has been flowing through the economy. And whilst that cash (in the form of superannuation, JobKeeper and JobSeeker is tapering off) what is now clear is that domestic tourism spend is starting to fill the gap left by economic stimulus. Personal income tax cuts will help as well.
- Many retailers are actually in better shape than we expected. Again, with the exception of Victoria, we are seeing reports that retailers around the country are in reasonable shape.
- There is an enormous amount of goodwill ‘capital’ from government and consumers – we expect that to remain in place for the coming year. What does that mean? Retail is top-of-mind. It has emotional support and engagement from consumers and from government. Dare we say, the retail brand has never been stronger in Australia. How will this translate? We can expect a certain amount of consumer loyalty. We can expect a certain level of government support to continue.
- Some of the change has been very good for us. I said at the start of the pandemic we would see a decade’s worth of positive transformation out of this. Online has elevated to 10% of sales – it is likely to hit 20% soon in Australia with room left to climb if you look at the US as a benchmark.
Finally, retailers are amongst the most resilient business leaders in any sector. The pandemic has demonstrated that. In my blog post next week I will delve further into what we can expect in the new Covid normal, the opportunities and risks for retail in the coming months.
