Early warning signs for retail operators on the road to economic recovery

The Retail industry was under pressure prior to COVID-19 and the pandemic has served to act as an additional challenge. The pandemic has however accelerated development in some sections of the industry (including the shift to online) and forced operators to form a view on “make or break” decisions in a world of material uncertainty.

While many retailers have managed to navigate relatively well to date by taking advantage of an “eager” consumer and conserving cash with the help of JobKeeper and rent relief, a “cash crunch” is coming as the stimulus measures are rolled back and inventory must be refreshed for the Christmas season. Retailers must now make their annual “bets” on the seasonal demand but under a cloud of unprecedented uncertainty.

COVID-19 has forced many retailers to re-assess their business models in an attempt to address structural issues around store location and footprint within legacy networks and adapt to step-change in consumer behavior, including the acceleration of the transition to online. If seasonal sales do not provide the much needed injection of “Christmas cheer” revenue and/or a new rental model cannot be negotiated, then we anticipate many retailers needing more fundamental restructuring.

Uncertainty has never been more prevalent with consumer confidence bouncing around week to week, directly impacting sales, making forecasting, and scenario planning more important than ever. The current environment means there will be significant polarisation in terms of performance, with clear winners and losers across categories, within categories, and across regions.

It is therefore important for retailers, their Directors and stakeholders to track the “early warning signs” and lead indicators of financial stress. Whilst trading losses, overdue tax debts and debt recovery letters are obvious indicators, we set out below some further indicators to be monitored by companies or their stakeholders in this industry.

Early action to address financial distress facilitates better planning, better outcomes and also helps Directors meet their legal duties.

Early warning signs

AUTHORED BY

Darren Hopkins

Darren Hopkins
Partner, Brisbane
T: +61 7 3333 9870
E: dhopkins

Damien Pasfield

Damien Pasfield
Director, Sydney
T: +61 2 9338 2691
E: dpasfield

Mark Holland

Mark Holland
Director, Brisbane
T: +61 7 3333 9868
E: mholland