04 Sectors

Unexpected tailwinds of 2021 replaced by headwinds in 2022

Retail was a net beneficiary of the restrictions and support associated with COVID-19 throughout 2021. Not only did government stimulus buoy struggling retailers, consumers reallocated more ‘share of wallet’ towards goods. While other spending options remained limited, the wealth effect linked to increasing residential property values (for those lucky enough to be in the housing market already) increased consumer confidence and demand.

As re-opening expands spending options and inflated interest rates dampen sentiment, retail top lines are likely to plateau or even retreat. ABS retail sales data showed 2021 sales were on average 12% above pre-pandemic levels, however, there were months where that gap narrowed. By February 2022, consumer confidence had fallen by around 15.5% from the 11-year high reported in April 2021.

This year, retailers face:

  • a likely reversion towards pre-pandemic spending habits with a shift away from retail and tangible goods towards more experiential and services-based spending (including hospitality, leisure, and tourism);
  • strong momentum in online and click-and-collect shopping, as a result of a permanent change in consumer behaviour;
  • increasing inflationary and margin pressures as the ability to pass on input costs becomes limited;
  • difficulties in demand forecasting and inventory management putting pressure on working capital; and
  • sourcing, distribution and fulfilment challenges brought about by ongoing global supply chain issues.

Against that backdrop, retailers can improve their chances of success and capture opportunities by:

  • implementing an integrated plan with suppliers, financiers and customers to build supply chain resilience;
  • optimising working capital and inventory management to drive supply chain improvements;
  • reviewing company structure and fixed cost bases with careful consideration of store footprint and profile;
  • re-assessing strategy and creating a clear plan with associated financial forecasts to share with investors and financiers;
  • allocating resources towards e-commerce and fulfilment, including utilising customer behaviour analytics and business performance data to better inform decision-making; and
  • implementing comprehensive pricing and marketing strategies to attract and retain customers, and to maintain and enhance competitive position.