Commentary : From a societal as well as economic perspective it is important to re-ignite retail and hospitality.

By Richard Umbers

Preparing a Business Continuity Plan (BCP) is a familiar exercise for any well- run businesses. Many companies may also employ scenario planning tools or roleplay, and may conduct a Risk Analysis, often overseen by a non-exec Board, to prepare the business for unforeseen events. While the process itself may have been useful, very few firms would have contemplated even a worst-case scenario to equate with recent events.

A reality in which for some businesses’ revenue fell virtually overnight to zero yet rent, labour and interest costs remained. While external support from government, landlord or other creditors may assist, such support can only be short term.

Yet it is impossible to generalise, as other retail businesses face a crisis of another kind, that of unprecedented demand, and constrained capacity to fulfill. This would include the retail of essential services such as food and some pharmaceuticals, but also discretionary goods linked to remote working – Home Office supplies, electronic goods, but also DIY and garden supplies.

Post the Global Financial Crisis (GFC) consumer confidence and spending levels did not recover immediately, and consumer behaviour change was in many areas permanent. Ecommerce penetration rose during the GFC for example, and higher online growth rates were sustained for several years post the crisis. This situation is likely to be replicated in the wake of the current crisis. From a societal as well as economic perspective it is important to re-ignite retail and hospitality.

Notwithstanding the positive signalling effect of busy shopping strips or malls to restore confidence, the retail sector alone represents almost 10% of the working population, rising to more than 15% if the Accommodation and Food Services sector is included. Employees are disproportionately skewed towards the most vulnerable members of society, many living pay check to pay check.

Retail and hospitality employees are consumers too, spending a high proportion of their total income and thereby offering an efficient mechanism for spreading stimulus across other sectors. Retail and hospitality should play a leading role in the recovery phase.

In times of crisis we look to government for practical leadership, and the current framework utilising restriction ‘levels’ is a useful tool to guide businesses in their planning. Yet businesses need to supplement this with their own action plan to aid recovery, tailored to their own circumstances, or they face the even greater risk of an expectation of being fully open, but without the foot traffic and revenue to support the cost base. In time this will be exacerbated as government subsidy and other support payments are wound back. Many businesses may have backstock of out of season or dated inventory, which will prove difficult to sell at full margin, and firms may not have had the opportunity or means to purchase new season stock.

Such a recovery plan must of course include practical risk mitigations such as taking steps to maintain social distancing or offering hand wash facilities. It should also include actions to reduce costs, as well as cost effective measures to boost near term revenue, with the objective of ensuring positive cashflow. Some businesses may even find themselves better off closed for a longer period than to resume trading without the breakeven foot traffic.

However, real consideration should be given to planning further into the future, adjusting the business model ahead of sustained changes in consumer behaviour. This broader ‘pivot’ to deliver longer term sustainability may include such options as upgrading online operations, offering home delivery, or even an entirely new product suite. Some businesses have the ability to evolve gradually over time, but real and fundamental change is often rapid and spontaneous, often prompted by necessity or crisis. As the adage goes, ‘never waste a good crisis’ – to rethink the fundamentals.

Retail and hospitality should play a key role in the recovery phase, offering the opportunity for societal as well as economic benefits, which extend beyond the sector. The scope and scale of the sectors’ contribution will depend in large part on the government recovery plan and for example, on mechanisms such as the Jobkeeper payments. Businesses themselves however also play a critical role through their own proactive planning for their own survival and growth, both through short term initiatives, as well as by grasping the opportunity for innovation and re-invention to secure their long-term viability.

Further information

Richard Umbers is an experienced CEO and Board member, across the Retail and Logistics sectors, with particular expertise in eCommerce, digital and in leading major change in times of uncertainty. He was until recently based in Germany employed as a senior executive in supermarket retailer Kaufland’s International division, and prior to that held the role of CEO and MD at Australian department store chain Myer. Richard was previously the CEO of StarTrack and also held other MD and GM positions at Woolworths both in Australia and New Zealand, and at Aldi in the UK and Republic of Ireland.