The collapse of PAS Group last Friday could just be the “tip of the iceberg” for the retail sector dealing with COVID-19 fallout, even as restrictions ease and stores start to re-open.
The publicly-listed business announced it had appointed administrators from PwC in a bid to restructure the company, which runs more than 200 retail stores across Australia, including Review and Jets stores.
However, this came just weeks after PAS announced it would start progressively re-opening stores closed in March amid the coronavirus outbreak, raising concern many retailers, even prominent brands, will find it difficult to return to sustainable trading conditions in the wake of the pandemic.
PAS chief executive Eric Morris said in a statement the administration would put the business in the best position to emerge from the pandemic standing.
“Against the backdrop of many retailers closing their doors, we have taken proactive action to put PAS Group in the best possible position to navigate through the pandemic and subsequent economic challenges,” he said.
Well known Skincare brand Dr Roebuck’s also fell into voluntary administration yesterday, as first reported by The Australian, and we could be seeing the beginning of a wave of retailers and their suppliers looking to restructure.
Federal and state officials have begun easing trading restrictions, and many retailers are starting to re-open ahead of the forthcoming end-of-financial-year trading period.
But retail expert and Queensland University of Technology (QUT) professor Gary Mortimer says there will be significant challenges for businesses looking to keep their footing as they resume trading.
The PAS collapse is just the “tip of the iceberg”, Mortimer tells SmartCompany.
He suggests many other retailers will be forced to take drastic steps to restructure heading into September, when government support measures including JobKeeper and rent deferrals begin to expire.
“It’s not going to be as quick and simple as flicking a switch,” he explains.
“As businesses re-open they’re going to start encountering significant challenges.
“The way people shop, the way we dine, the way people socialise has fundamentally changed – permanently.”
Many retailers, big and small, are currently relying on the government’s JobKeeper program to pay the majority of their wage bills, but this support will expire in September, along with a rental assistance package that’s allowed tenants to delay payments to landlords.
Mortimer predicts this will combine with the added cost of ensuring businesses can comply with the government’s proposed ‘COVIDSafe’ operation plans and the likelihood of an extended discounting cycle to place additional pressure on already thin retail margins.
“When we see a lot of this relief disappear we will see a number of big retail chains either move into voluntary administration or permanently close a proportion of their physical stores,” Mortimer says.
Retailers are preparing for extra costs associated with ensuring social distancing regulations are maintained, and maintaining sufficient hygiene standards, including regular cleaning of in-store surfaces and installing new infrastructure like sneeze guards.
Insolvency experts are also predicting a spike in restructuring activity heading into September, when government support programs expire, while other large retailers such as Accent Group are already shifting investment to e-commerce to lower their cost base in the second half of 2020.
Mortimer is currently pulling together modelling about the future trajectory of e-commerce sales in Australia after the coronavirus crisis, and suggests online retail will balloon by $3.2 billion by 2021.
Australians are currently spending about $32 billion online each year, Mortimer says, but this is predicted to rise to more than $35 billion by next year, with about ten cents in every dollar expected to be spent on the internet.