COVID-19 & The Future of Retail in Australia

The closure of retail locations across Australia and New Zealand as part of the public health response to COVID-19 had a dramatic and immediate impact on the industry. Overnight, the majority of a billion-dollar industry that accounts for a significant percentage of employment and GDP in both countries was shut down, putting tens of thousands of businesses and millions of jobs at risk.

This period offers fresh challenges but also new opportunities for Australia and New Zealand’s retail operators. As restrictions ease across the two countries, businesses are looking to the future, seeking to address both short-term needs during the lockdown while adapting to evolving consumer demands.

Key to this is understanding the exact nature of the crisis, most critically the true impact on the retail sector. While a massive disruption, the lockdown did not result in a strictly linear decline for the industry. The initial wave of restrictions in March resulted in a pronounced spike in turnover growth in both Australia and New Zealand as households sought to stock up for a quarantine of indefinite length, resulting in the strongest monthly growth in retail sales on record in Australia. This was followed by another spike in May as restrictions began to lift in some jurisdictions, but analysts fear that these high peaks may foreshadow deep troughs.

Two banner months for retail growth so close together has left businesses chasing soaring demand that – as of later this year – may simply not be there. A significant contraction in the retail sectors of both countries is predicted for Q3, with reduced spending driven by the prolonged lockdown and continued presence of the virus to blame.

Developing business resilience amid a crisis

Ahead of potentially lean times, our advice is simple – protect your cash flow. If you’ve increased your inventory to prepare for another spike in growth, it’s vital that you liquidate as much of it as possible ahead of the contraction to give yourself a nice cash buffer.

Once inventory levels are low, our recommendation is to keep them there. Throughout the second half of the year, lowered consumer confidence is likely to translate into reduced spending, meaning that there’s a real risk of operators being stuck paying to warehouse stock that they simply cannot recoup a significant margin from. Preventative measures like this can go a long way to limiting your exposure to the contraction, helping you preserve your cash flow and stay solvent.

Business resilience requires more than just attention to your cash flow. Proper risk management means working together with your suppliers and partners to find a mutually beneficial solution to problems. One of the key stakeholders you must approach well in advance of any issue developing is your landlord. Both you and your landlord have a vested interest in ensuring that your business survives and thrives, so speaking to them as early as possible can help you develop strategies for varying scenarios.

Understand the market, now and into the future

With government support programs in both Australia and New Zealand expected to continue (although reduced) through to March 2021, and with the virus likely to linger into the new year, it is vital that business owners take the long view when planning their response to the crisis.

Core to this will be understanding the need to engage with your customer wherever they want to shop. Consumer behaviour over the lockdown has shown that demand for online shopping solutions in some cases significantly outstrips what operators are currently providing. Online grocery shopping alone has doubled its market share since the start of the lockdown, now accounting for $1 out of every $20 spent on groceries.

However, it is vital not to over-correct towards online. While some consumers clearly value online shopping options, we are living in a unique moment that could make dynamic shifts in market share short term trends. COVID-19 has accelerated ongoing structural changes in retail with regards to online shopping, but the lockdown has proven that many customers still crave physical interaction in addition to online convenience. The proof is in the numbers – the relief at being able to return to in-person shopping and dining was a key driver of the May retail growth spike in Australia.

Additionally, online shopping is often significantly less profitable for retail operators than in-person shopping. Cost per acquisition is significantly higher online when businesses factor in marketing, brand building and additional warehousing and logistics expenses. Simply put, it is also easier to get consumers to buy something more than what they came for in a physical store than on a website. As such, if a significant proportion of sales shifts to online, many businesses may find themselves struggling to achieve the margins they relied upon before, creating downstream issues with profitability.

While there is clearly an enduring core of demand for additional online shopping options, much of the behaviour we’ve seen from surges in online shopping can be explained by the current need to social distance. As restrictions ease, what will be most crucial for operators is giving people a reason to return to the store. This not only means relying on all the normal tactics for adding value to the in-store shopping experience but making it a viable option for people who are rightfully concerned about contracting COVID-19. Re-examine your hygiene procedures, ensure that the store is clean, and that staff are provided with masks and gloves and customers offered hand sanitiser. Making customers feel safe is the first step towards getting them back in the store.

Building for success in a post-COVID-19 market

With all this in mind, it’s clear that an omni-channel approach is the most prudent choice going forward. Balancing the preferences of various segments of consumers will be the defining challenge of the post-COVID-19 market era.

One of the most fundamental errors you could make at this point is seeing your online and you’re in-person retail as two distinct businesses. They’re symbiotically linked – online customer engagement drives people to your brick-and-mortar locations, while in-person engagement can create loyal online customers and further marketing opportunities.

Regardless of your specific marketing mix, keeping your operations lean is of paramount importance. The pandemic and the attendant economic crisis are predicted to linger well into 2021 at the earliest, making consumers extremely price sensitive. Eliminating organisational waste and streamlining operations is tricky to do at the best of times but ensuring that you’ve minimised your overheads as much as possible without cutting into quality of product or service will be essential to surviving the next few years.

Finally, go back to the fundamentals. Spreading yourself too thin and trying to be all things to all demographics runs the risk of both inviting cost overruns and failing to connect with your most loyal customers. Recognising, defining and constantly appealing to your core target market is the way your business can inspire the kind of repeat conversions that can support you in the long-term. Find your niche, understand the market and act deliberately – that is how your business gets through the crisis.


Make the next step for your business your most confident yet. Speak to your local Bentleys advisor. We can help you put in place a COVID-19 management plan for your business.

We, at Bentleys, are doing everything we can to help businesses come out of this challenging time in good shape.

We will continue to update our COVID-19 resource hub with important developments, so please return soon.

Disclaimer: This information is general in nature and should not be relied on as advice. It does not take into account the objectives, financial situation or needs of any particular person. You need to consider your financial situation and needs and seek professional advice before making any decisions based on this information.

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The governments of Australian states and territories have also released independent stimulus packages. For an overview of all Australian measures, click here.

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