We ask Andrew Yeo, a partner in Business Recovery and Insolvency with Pitcher Partners, to discuss the next phase of 2020. He is currently handling the voluntary administration of teen chain Pavement.
There’s a key question to ask if you want to know whether a retail business will survive the next year: what’s the landlord doing?
After years of retailers trying to get landlords to take a more reasonable approach on rent, even as they faced an onslaught from online shopping, COVID-19 and associated land tax relief measures have finally brought many to the table.
And while your tenancy agreement is only one factor on your business balance sheet, an intractable landlord will be making it much harder for your business to survive.
For those who have negotiated a viable solution with their landlord, life might not actually be too bad right now.
Pent up demand for some fashion lines is strong and if you have qualified for JobKeeper, you probably have little or no wages bill, and locked away reduced rent under the relevant state rental Code of Conduct (or are on your way to doing so).
This is especially true for retailers in Queensland, South Australia and Western Australia, where coronavirus restrictions have been quicker to lift and things are returning to business as usual.
But it can be an all or nothing outcome, where the business is either benefitting from both minimal wages and low rent or has secured neither of these.
And for retailers without decent rent relief, or who have been compelled by their landlords to open regardless of a drop in foot traffic, the situation is far more difficult. Some regions and retail categories remain quiet.
So yes, those on JobKeeper and corresponding rental reductions will likely be making some money at the moment. But what about when the music stops?
Even with the wage subsidy extended beyond September, nobody can expect the government to keep footing the bill permanently, and the same goes for other relief measures.
Almost at the same moment, we will see the extra leniency afforded to directors around creditor demands come to an end , along with the six-month moratorium on trading while insolvent.
It means there’s a window right now for retailers to get their house in order and make sure that, come September and onwards, they are ready for what could be a sharp rise in expenses and demands.
My advice to any retailer doing relatively well right now would be: it’s time to reset your cost structure. Look at your long-term business model and work out exactly what is sustainable.
Labour costs will be a large factor but knowing where you stand long-term with your commercial lease is critical to determining the long-term viability of your business.
Many landlords and tenants are realising this is not a fight to the death, but a journey to try and find a solution that both parties can livewith.
Start by talking to your landlord. If ever landlords were going to come to the party on long-term changes around rent, it is now.
There are lots of retailers who might be experiencing a rosy few months, with strong trade buoyed by JobKeeper and rental relief giving them time to get their house in order.
But for some retailers, even taking into account all these factors, it won’t be enough.
It’s only once those supports are removed that we will see who has taken the steps needed to stave off insolvency.
Start doing that work now – it is later than you realise.