in the retail industry, writes AimeeShaw, it’s a case of preparing for the storm.
Analysts and some of the country’s top chief executives say it is not unwise for retailers to be planning for the worst-case scenario — for schools to be shut, shops closed, and self-isolation and remote working to become the ‘‘new normal’’. That reality has already arrived in Italy, France, other parts of Europe, some states in the United States and Britain.
Retail NZ expects about 10,000 retail workers will lose their jobs in the months to come if Covid-19 continues to spread and sales keep falling as consumers tighten their purse strings amid the continuing uncertainty.
Insolvency practitioners anticipate a sharp spike in liquidations and business failures in the months ahead, though these are not expected to flow through immediately. Hundreds of businesses are already believed to be on the brink of collapse.
Rachel Lewis, founder of women’s business advisory group She Owns It, said now was a good time for business owners to be working on their business, as opposed to in it.
A recent survey among her members found that Covid-19 disruption had already shaken up the small business sector, particularly retail operators, who were reporting that revenue was drying up and store foot traffic was falling.
‘‘There’s been a lot of fear over what the next few months are going to mean for small business because a lot of them don’t have much of a buffer,’’ Ms Lewis said.
‘‘There’s a lot of insecurity around the future, concern that businesses are not going to make it through the next few months.’’
Firms were already feeling the pinch just weeks into the pandemic, but she said it was important that businesses carried on, even if that felt inappropriate.
‘‘If you’re lucky enough to have a buffer, now is a great time to focus on working on the business rather than in the business; that could positively impact your long term growth.’’
She encouraged businesses to continue to advertise and market themselves online and through social media.
Now was also a good time for businesses to review expenditure and how they could increase profit by reducing costs.
‘‘Look at how you can become a lean business or a leaner business in this time,’’ she said.
‘‘Step back from the panic ... of ‘I don’t know what to do because my sales have dried up’ and instead think: ‘I’ve got an opportunity to plan for the future and improve my customer experience’.
‘‘In the future, it is going to get busy again at some stage, and if you can ride [this] out there is an opportunity there because some businesses will fail — if yours is not one of those, then when customers do come back, there will be more on offer if you do this right.’’
The Warehouse Group chief executive Nick Grayston said he believed the worst disruption caused by the pandemic was yet to come.
Initially, Covid-19 had affected The Warehouse Group’s supply chain and its flow of goods from China — where about 60% of its product is manufactured — a result of the lockdown and widespread closure of factories there.
Now, the company was concerned about domestic challenges, including panic buying, the possible spread of the virus to its staff and a drop-off in consumer spending.
‘‘The closing effectively of our borders, talking about containment and self-isolation, we’ve done a lot of contingency planning for what that means,’’ Mr Grayston said.
So far the NZX-listed company had experienced no negative effects because of Covid-19, but Mr Grayston said the challenge was not being able to predict what happens next.
The worst-case scenario for the group is that its network of more than 280 stores in its Warehouse, Warehouse Stationery, Noel Leeming and Torpedo7 retail chains is closed to stop the spread of the virus. That prospect is now the reality for thousands of retailers in the US and Europe.
Struggling American department store chain Macy’s has already closed all of its stores until March 31 in a bid to try to curb the rapid spread of the virus in the US. The move followed closures by Apple, Tiffany & Co and Nike, among others.
Mr Grayston said The Warehouse was prepared to close its stores if it came to that.
‘‘First and foremost, we want to protect our people. We have put in all sorts of contingencies around IT, stores, our warehouses, our office; we have plans that we will implement as the various scenarios eventuate.’’
The Warehouse Group was working with the Government to ensure the public remained able to buy essential products during any supply chain disruption caused by efforts to control the pandemic.
It was holding daily crisis meetings, looking at ‘‘contactless delivery’’ options in case the need eventuated, and about 750 workers in its Auckland support office were trialling working from home. It was also looking at new ways of shipping goods from its distribution centre, and from different locations.
Mr Grayston did not rule out the possibility that the looming economic downturn could lead to staff cuts in his own business, but he said The Warehouse was ‘‘trying very hard to avoid that’’.
The Warehouse this week reported an almost 20% drop in its first-half net profit, to $29.2million. Excluding ongoing internal transformation costs, the underlying result was up 16.7%,but it was now unsure how the outbreak would affect trade in the remaining six months of the financial year.
Dual ASX/NZX-listed outdoor equipment and apparel retailer Kathmandu had activated its pandemic contingency plan as it grappled with a significant fall in the number of people visiting its stores. It was now expecting a significant fall in its second-half earnings.
The firm had been hit particularly hard in Europe, and it had been forced to close its Rip Curl stores there. This week it announced that it had frozen hiring and travel.
Kathmandu chief executive Xavier Simonet said the company had been monitoring developments to ensure it was taking the best approach to protect staff and customers’ wellbeing.
‘‘In response to trading conditions, the group is taking decisive actions, specifically in reducing operating expenses, deferring non-essential capital projects, optimising labour costs, managing inventory levels and implementing a travel and hiring freeze,’’ she said.
The outbreak has sent some consumers into a spending shutdown, as they opt to hold on to their money and pull back on discretionary spending in areas such as clothing, leisure and luxuries, including eating out. Foot traffic to cinemas has also dropped significantly.
‘‘Across the board, we are seeing people reducing the amount of discretionary spend,’’ retail analyst Chris Wilkinson said.
‘‘Without travel, it is going to put more money into people’s pockets, but they are going to be very mindful of that money, and cautious, because there will be job uncertainty.’’
Retail NZ said spending in this country’s stores had fallen by about 60% since the first confirmed Covid-19 case here almost three weeks ago, while spending online had dropped about 10%.
The retail sector has an annual turnover of $98billion and employs some 215,000 people, about 10% of New Zealand’s workforce. It contributes about 4.5% of GDP.
Retail NZ chief executive Greg Harford urged people to support shopkeepers.
‘‘Most retailers in New Zealand are locally-owned stores, even if they are part of a franchise brand,’’ he said. ‘‘We’d really be urging people to get out and support their local shops and communities because that’s how we’ll keep the economy going and keep jobs in communities.’’
Around the country, store foot traffic had taken a steep dive, people-tracking company Bellwether, which electronically counts people visiting civic spaces, said.
In Auckland, that decline was accelerating as each day passed.
Bellwether general manager Liz Fulford said stores around New Zealand were experiencing a decline in foot traffic of more than 25%.
‘‘We don’t see the situation improving short term.’’
Disruption to business ‘unprecedented’
While the outbreak is expected to accelerate insolvencies within the retail, tourism and wider hospitality sectors, among others, it is also expected to bring sales of businesses to a gradual halt.
ABC Business Sales managing director Chris Small said the virus had caused uncertainty, making people keen to postpone or hold on to money, assets and businesses.
Business brokers were not yet being inundated with owners wanting to quickly sell their businesses, Mr Small said, but he expected that to happen as the situation worsened.
‘‘These are unprecedented times. There hasn’t been an event like this before,’’ he said.
‘‘If we’re still in a similar situation, for example, if the same travel restrictions are in place, and we have the same hype around this in four to six weeks time, and we are no better off, then I’m sure we’ll be getting contacted by a lot of people.’’
Most businesses could handle a couple of months of stretched revenue, but rarely anything beyond that, Mr Small said.
‘‘If it is four to six weeks [of hardship], we’ll get through that; if it is anything over three months ... that’s when people start thinking about needing to make people redundant, do they need to ring their landlord and let them know that they can’t pay rent, bills and that has a knock-on effect.
‘‘We went through the 1987 crash, we went through Sars, swine flu, the GFC, this will potentially outdo all of those because New Zealand has never closed off travel before — this is unprecedented territory.’’
Spike in business failures predicted
Baker Tilly Staples Rodway business recovery director Tony Maginness said the recovery firm had increased its capacity.
Like a number of insolvency experts, Mr Maginness expected a delay before the extent of business failures was revealed.
‘‘Often there is a lag between businesses getting in trouble and seeking help with restructuring and liquidations,’’ he said.
‘‘While we have heard a lot of businesses struggling in the tourism, events, hospitality and fresh produce export industries, they have not yet appointed administrators and liquidators. We have increased our capacity to help businesses as this service becomes vital in the coming weeks.’’
Waterstone Insolvency owner Damien Grant said it took 12 months for liquidations to rise following the 2008 global financial crisis.
‘‘I don’t think we’ll start to see large formal insolvencies for another three to four months, but what you will see, [sooner] companies that were already in trouble deciding that they have no future because they needed everything to be going perfectly in order just to be able to keep the wolf from the door.’’
PwC head of business recovery John Fisk, who is also chairman of the Restructuring Insolvency & Turnaround Association, said there had been a slight increase in liquidations even before the Covid-19 outbreak, as the New Zealand economy slowed.
‘‘In terms of the impact of coronavirus, we’ll see a lag, so the number of formal insolvencies is inevitably going to increase, but it will take some time to work through before we see that.’’
Mr Fisk said PwC was advising its clients to focus on short-term liquidity to ensure they stayed afloat during the challenging time.
It also recommended that businesses monitor the health of their staff, have at least a 12-week rolling cashflow, set up good communication channels with key stakeholders and make sure the bank is aware of their financial position.
Silver lining amid chaos
Amid the gloom elsewhere in retailing, grocery sales are booming. Before long, it is predicted that homeware and DIY hardware will do the same, as people increasingly swap travel in favour of nesting at home and doing up their property.
Warehouse Group chief executive Nick Grayston said the company’s stores had also recorded a spike in laptop sales as people prepared to work from home and have their children in distance learning.
Retail analyst Chris Wilkinson said home improvement and homeware retailers had had fewer people in their stores, but those people were buying more.
The Bunnings DIY chain anticipated a rise in sales as thousands of workers find themselves working from home, or are stuck there with time on their hands, and notice repair jobs or home improvements that need a trip to one of its stores.
Chief executive Michael Schneider said he had a feeling that consumers were now focused on home improvements.
Mr Wilkinson agreed.
‘‘Over the past week we’ve seen the grocery sector do well and we anticipate this will continue to be strong as people do more at home. Other countries have seen the same things happen.
‘‘... In times of distress we know consumers want to ‘nest’ — making their living environments comfortable and safe — and we’re seeing this through the grocery and home improvement trends and also some good performance in homeware retailers over the past week.’’
Less travel would refocus consumer spending and, given time, once people rationalised the risk of Covid-19, the time at home will ultimately help retailers in that category, he said.
— The New Zealand Herald
