Bounce is associated with resilience, the capacity to recover quickly from difficulties; Resilience comes from strategic thought, awareness (of your competitive position & circumstances), speed, flexibility, and agility in a rapidly changing retail environment.
Citi Research outlook for the Australian Economy and Retail in July 2020 paints a bleak outlook for Discretionary Retail in the next 12 months to June 2021.
To summarise Citi are forecasting household disposable income growth will be negative 2 percent. For discretionary retailers, we are recommending for forecasting purposes work on sale declining of 20 percent from2019 levels based on these projections.
In 2021 the bounce will be associated with:
- Online sales growth that will accelerate
- Retailers who look to shrink their bricks and mortar store portfolio, and reduce rental as a percent of sales. As a rule of thumb, there are around 40 "A" Class Shopping Malls and Precincts in Australia (250 in the USA), however, the top 40 locations will vary depending on your customer demographics.
- Restructuring: A majority of Retail Executives (at least 50 percent) according to an Inside Retail Survey expect to restructure this financial year. This figure should be 100 percent considering Job keeper will cut out in March 2021, so restructures will need to start soon.
In 2021 the belly floppers will be:
- Full price middle-market retailers with a weak e-commerce presence. Visit any H&M, Zara, or Uniqlo store to view everyday low prices in action and see how uncompetitive many of our Australian Fashion Retailers are becoming. These fast fashion monoliths offer value for money, quality for the price, and cover basics to fashion-forward.
- Retailers that "pretend restructure" and don't address the endemic problem in retail of overbuying, overstock, overstaffing, or worse the wrong staff, view e-commerce and bricks & mortar separately all leading to declining sales, margin, and profits. Seafolly, Colette, The Pas Group, Tigerlily, David Jones, Myer come to mind in this category.
- Ignore the digitisation of the retail industry and the numerous changes needed to be successful in moving forward.
To test how Australian Retailers are progressing in ramping up their e-commerce offering especially around the customer experience via offering a fully automated buy online pick-up in-store (BPOIS) and stock look-up in an individual store, last year I conducted a benchmark on how many retailers were offering this functionality - the result was 2 out of 150, currently, we estimate less than 20 percent have this functionality. We talked to one retail software vendor this week and asked were they being swamped with inquiries and the answer was "we have had an uptick in inquiries however not enough to indicate Retailers are rushing to adopt best practice”.
When I ordered an item from David Jones Online recently and paid for the goods, a few days later I was advised it was out of stock and it took me an additional three days to get credit and then had to visit the store to purchase a more expensive item, kind of defeated the exercise.
Anecdotally there doesn't appear to be a rush to action, understandable in some ways due to the stresses retailers have experienced over the last five months however time waits for no one.
"Everyone has a plan until they get punched in the face" - Mike Tyson.
COVID-19 is a real punch in the face for retailers, bouncing back or belly-flopping will be determined by resilience, speed and, taking action.
I would suggest that if you cannot offer this enhanced e-commerce functionality in the next six months then a belly-flop maybe on the horizon.
It not sinks or swim for all retailers.
Column supplied by Bill Rooney - CEO of 6one5 Retail Consulting Group
+61 4 1736 2073