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Is this the end to retail as we know it?

April 22, 2020
Editor(s): Dahye Koo
Writer(s): Emily Hartley, Anuk Kariyawasam, Sean Reid

Australian retailers have been left struggling to stay standing during the adverse, and unprecedented events of 2020, thus far. As bushfires swept through the country in January, retail stores faced interruptions in the way that they received their stock, and consumer numbers plunged as individuals opted to stay home in a bid to avoid the hazardous effects of the fire’s lingering smoke. Consequently, retail turnover plummeted by 0.3%, succeeding the unconventional decline of 0.7% over the Christmas and New Year’s periods in the previous month. In February, a sense of false hope was provided to suffering retailers as the retail turnover increased by 0.4% after 3 months of concerning sales, however, the worst was yet to come. With the new-found global pandemic, COVID-19, reaching Australia on the 25th of January, the Australian Government has been obliged to, since, take preventative measures to subsequently slow down the exponential spread of the virus within the country. Urging Australians to stay home, government officials have, amongst a multitude of actions taken, progressively placed stricter restrictions on the number of individuals to be gathered in public areas. This, in turn, has left shopping centres to resemble ‘ghost-towns’, exemplified by the eerily empty Bourke Street shopping area below.

source: SBS News

Given a myriad of retailers that also hold a presence in the online market, it was inevitable that physical retail stores would need to close their doors as Australian consumers made the transition to contactless, safer ways of shopping. But just how large of an impact has the coronavirus outbreak had on both physical and online retail as we know it, and how can we compare these events to the retail impacts of the SARS outbreak in 2003?

Thus far, the Coronavirus pandemic has led Australian retailers to stand down thousands of employees as physical retail stores respond to a significant decline in foot traffic and voluntarily close for the indefinite future. With many consumers left with no choice but to shop their favourite stores online, it is unsurprising that online retailers have experienced a boom in activity during this time of severe uncertainty and strict social distancing. Amongst those seeing a large spike in demand is e-commerce giant, Amazon, which saw its share price close at a record-breaking new high of $2,409.19USD on the 16th of April, ultimately raising the wealth of CEO and founder, Jeff Bezos, by $24 billion to a total of $138 billion.

source: yahoo!finance

Furthermore, as the fashion and footwear industry saw its biggest decline in sales since 2011, with spending falling by 2.9% in the month, supermarkets, pharmaceuticals and department stores were left to reap the benefits of coronavirus fears. As shoppers rushed to stock up on toilet paper, sanitiser, flour, pasta and other necessary supplies, the retail sector was able to record a 0.4% increase in turnovers in the month of February, up by 1.7% from the previous year, and with spending at supermarkets rapidly increasing by 40%.  

However, an influx of online customers and the presence of panic buying carries with it the burden of significant delays in delivery and inevitable stock shortages. Becoming suddenly inundated with orders required to be processed, packed and posted, many retailers have made changes to the way their customers shop online. In a prompt response to the recent panic buying fiasco, supermarket giant Woolworths has temporarily ceased to pick up orders and suspended regular delivery in selected locations, allowing staff to redirect their attention to restocking shelves and prioritise delivery to those most vulnerable. Stores have additionally been required to reduce their trading hours in order to allow time to ensure products are readily available on the shelves. In addition, due to unprecedented demand, the ACCC has ruled supermarkets to collaborate with each other during this time in a bid to get products on shelves and to customers sooner. Initially arising from this decision were consumer fears of price-gouging, which customers taking to social media believed to be increasingly apparent amongst produce items. However, a spokesperson for Woolworths has since made a statement claiming that the “pressures throughout the horticultural supply chain caused by drought, unseasonal weather and an unprecedented spike in demand” were factors to blame for the supermarkets’ increase in prices. Furthermore, a well-loved Australian retailer, Kmart, has made controversial changes to the way customers browse their online store. With their servers lacking the capacity to accommodate excess traffic and increased online activity, the retail giant introduced a queuing system, much to the dismay of its customers on social media. The new system, which requires customers to wait up to 20 minutes before accessing the site, had been put into place to ensure a more pleasant online experience in high traffic periods. This points to a significant problem also suffered by fashion retailers where dependence on offline sales has reduced the ability to cope with crises like this on a technical scale.

Yet, can the effects on the Australian economy and retail in 2020 be worse than those seen during the SARS outbreak in 2003? The answer is a resounding yes. In 2003, the SARS (severe acute respiratory syndrome) outbreak saw China stumble into a period of declining economic growth, dropping from 11.1% in the first quarter of 2003 to just 9.1% in the subsequent 3 months. Amongst the industries most heavily affected by the epidemic was that of the retail sector, with China reporting its slowest growth rate in retail sales of 4.3% in May 2003, down from 10% in January of that same year. Despite Chinese tourism decreasing significantly during this period, the pressure felt by the Australian economy, and, in particular, on Australian retail at the time was quite minimal. The impact of COVID-19 on the Australian economy, however, is, quite plainly, more notable than the 2003 SARS epidemic. According to Treasurer Josh Frydenberg, the Chinese economy is now four times the size it was in 2003, and Australia’s trade relationship with China has, since, developed quite substantially. In fact, in the time period subsequent to the SARS outbreak and leading up to today’s current pandemic, the Chinese economy has grown from being the world’s sixth-largest economy to now being the second-largest economy globally. In addition, China can now be acknowledged as Australia’s top trading partner.

 This means that the halting to Chinese production has taken a larger toll on the Australian retail sector in comparison to 2003. For example, as China is acknowledged as Australia’s largest supplier of electronic goods, China’s lack of production during this period has already seen retail giants, such as JB-HI-FI, left unbeknown to when stock will next arrive. In addition, Apple has publicly commented that shortages may be experienced for products as popular as the iPhone, with the tech giant seeing closures to its stores across China and, thus, a halt to production. As a whole, these claims can further be supported by the knowledge that the coronavirus pandemic is arguably on a much larger scale than the previous SARS epidemic. Despite SARS tragically resulting in the death of nearly 800 individuals in 17 countries, the coronavirus pandemic has, thus far, claimed the lives of 134,669 deaths as of the 16th April, and has reported over 2 million confirmed cases worldwide. Hence, it is inevitable that the economic impact from COVID-19 is having a far greater impact on the world economy, and on Australian retail, than the SARS outbreak in 2003.

The burning question left with us is, will shopping centre retailers face an extensive term of underperformance, even once the pandemic has subsided? Will consumers eventually grow tired of shopping their retail favourites online and opt for in-store contact once again? Or will the severity of the 2020 coronavirus pandemic carry with it a prolonged fear of human contact and a shelter from the outside world?

References:

Chalmers, S. (April 2020). Coronavirus sees retail sales rise in February as Australians stockpiled groceries and pharmaceuticals but clothing sales fell. Retrieved from https://www.abc.net.au/news/2020-04-03/coronavirus-effect-on-retail-sales-feb-2020/12117982

Hobday, L., Khadem, N. & Sas, N. (2020, March). Supermarkets allowed to work together after coronavirus panic buying, but shoppers fear grocery price hikes. Retrieved from https://www.abc.net.au/news/2020-03-24/supermarket-coronavirus-panic-buying-price-gouging-coles-woolies/12084282

Neate, R. (2020, April). Amazon reaps $11,000-a second coronavirus lockdown bonanza. Retrieved from https://www.theguardian.com/technology/2020/apr/15/amazon-lockdown-bonanza-jeff-bezos-fortune-109bn-coronavirus

Davey, M. (2020, February). From batteries to shutters: Australian firms eye potential coronavirus shortages. Retrieved from https://www.theguardian.com/world/2020/feb/22/from-batteries-to-shutters-australian-firms-eye-potential-coronavirus-shortages

The economic impact of Severe Acute Respiratory Syndrome (SARS). (2003, July). Retrieved from https://treasury.gov.au/publication/economic-roundup-winter-2003/the-economic-impact-of-severe-acute-respiratory-syndrome-sars

Butler, B. (2020, February). Reserve Bank boss says coronavirus likely to be worse than Sars for Australian economy. Retrieved from https://www.theguardian.com/australia-news/2020/feb/07/reserve-bank-boss-says-coronavirus-likely-to-be-worse-than-sars-for-australian-economy

Duke, J. (2020, February). Coronavirus more economically damaging than SARS: Frydenberg. Retrieved from https://www.smh.com.au/politics/federal/coronavirus-more-economically-damaging-than-sars-frydenberg-20200216-p5417f.html

The CAINZ Digest is published by CAINZ, a student society affiliated with the Faculty of Business at the University of Melbourne. Opinions published are not necessarily those of the publishers, printers or editors. CAINZ, our Partners and the University of Melbourne do not accept any responsibility for the accuracy of information contained in the publication.

Meet our authors:

Dahye Koo
Editor

Dahye is a Commerce student majoring in Finance and Accounting with passion in the past, current and future financial market, global economy and the development of businesses. Always interested in keeping up to date with current events and excited to share this with everyone through writing.

Emily Hartley
Writer

Hi everyone! My name is Emily and I am a current penultimate year student studying Bachelor of Commerce with majors in Finance and Economics. As a digest writer at CAINZ, I am able to tie together my childhood passion for writing and the qualitative and quantitative aspects of finance and economics. I am excited to deliver to you a range of articles throughout my time as a writer.

Anuk Kariyawasam
Writer
Sean Reid
Writer