Losing up to 50% of weekly sales from our retail stores during the current Greater Sydney lockdown is a big hit to take, but we’re fortunate that our online store is strong and growing. For retailers and businesses that can’t sell their products or services online, the impact could be devastating.
Ecodownunder at one time had 20 stores in Greater Sydney, but now we have five with four closing in the last 18 months.
Fortunately, pre-COVID, we had shifted our focus to online. Ecodownunder’s online store really took off when the pandemic hit Australia growing from 10 to 50% of sales. For businesses who can’t sell online, it’s a very precarious time.
In addition to the loss of sales, there are multiple knock-on effects that are quite complex to manage in relation to stock levels and seasonality; future ordering and forecasting in a period of uncertainty; and both managing staff and rental negotiations when stores are closed. This is exacerbated when key staff are required to quarantine for 14 days.
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Zero income, fixed costs
The immediate impact of lockdown and store closures is zero income from these premises. If you’ve got zero income you need to get your fixed costs as close to zero as possible. The two biggest costs to stores are payroll and rent.
This time the government has provided a better alternative to JobKeeper in the COVID-19 Disaster Payment. Funds flow direct to the employees which appears to be a more effective way of getting money directly to the bank accounts of employees that need help. However, many businesses that are experiencing a downturn will not be eligible for the payroll tax benefits, as they only apply to those with a payroll greater than $1.2 million, excluding a huge number of small businesses.
The second biggest cost is rent. Here the government has been less proactive about assistance to business. The Retail and Other Commercial Leases (COVID-19) Regulation 2021 (the new regulation) provides some protection for tenants by preventing landlords of retail and commercial properties from terminating and enforcing the leases if the tenant does not pay rent between July 13 and August 20, 2021.
But the new legislation does not provide for rent relief, leaving each business to negotiate individually with their landlord through a process of mediation.
The offer of a rent deferral from your landlord doesn’t quite cut it. It merely defers the issue for another month. It’s a very difficult situation for small tenants who have to negotiate with a landlord who is under no obligation to share the financial pain.
Landlords should be encouraged to come to the party with an equivalent of the reduction in the business — if business is down by 30%, they need to reduce the rent by 30%.
Whilst dealing with the cost side is a priority, dealing with the uncertainty of lockdown is a big issue. It makes planning extremely difficult, particularly with rumours of a fourth extension to the lockdown in Greater Sydney after August 28.
About one third of our products are made in Australia, which helps with supply continuity. Two thirds of our buying now needs to be done six months ahead. It used to be three months, but with COVID-19 lockdown issues in India affecting our production and shipping issues around the world, it’s pushed it out to six months and the costs have also gone up.
We have had to place orders for our stock for the summer and Christmas season without knowing if we would be operating at 50% or 100% capacity, if stores would be open or not. Lockdown is not only affecting our cashflow but also our stock levels, which need to be paid for and stored until we can open stores and sell them.