“Mass retail closures”: Why many retailers might not want their stores back after COVID-19

Usually Party People chief executive Dean Salakas would be gearing up for Mother’s Day trading and planning for Halloween at this time of year.

Instead, he’s shoulder deep in financial planning, having lost the majority of his customers to the COVID-19 pandemic.

“We’ve struggled big time, obviously people can’t have parties,” Salakas tells SmartCompany.

“The week in March when everything [the trading restrictions] got announced, we were down 92%.”

With the help of government cashflow support, rent relief and the JobKeeper program, Salakas is confident he can weather the storm, but attention is now turning to what happens next.

The independent retailer was one of the first in Australia to jump on the e-commerce wave, but for years has argued premonitions about the downfall of bricks-and-mortar were overblown.

However, as black swan events go, a global pandemic shutting down large swathes of the sector and forcing millions of Australians to shop from home is about as disruptive as it gets for the status quo.

“I’ve got to take a back flip now,” Salakas says.

“People have now been at home, they’re accustomed to shopping online because they’ve had to.”

“By being forced to do things like buy groceries online, people are realising it’s actually easier.”

Salakas doesn’t think physical retail is about to die out, but rather, that coronavirus has brought forward Australia’s e-commerce adoption timeline by five to ten years, all in a matter of months.

It’s a shift that could change the face of retail as we know it, and there are signs its already well underway.

‘Mass store closures’: Retailers mull the future

After a host of Australia’s largest retail chains closed their entire store networks amid stay-at-home orders across Australian states, some are now coming to the conclusion they might not want all their old locations back.

PAS Group, which owns clothing brands Review, Black Pepper, Yarra Trail and Marco Polo, closed 42 of its 230-plus store network last financial year. The group told investors yesterday it would look to restructure in the wake of the coronavirus outbreak, signalling an aggressive store closure plan as the business looks to invest in its digital channels.

Meanwhile, Hype DC, Platypus and Athlete’s Foot owner Accent Group is running the same race. Chief executive Daniel Agostinelli told the SMH yesterday as many as 50-100 stores could close in a post-coronavirus restructure that will see the business look to become digital-first.

Much of this activity was already happening anyway, giving rise to the industry euphemism of ‘right-sizing’. Retailers from Woolworths-owned Big W, to Myer and Michael Hill, have been reducing their retail footprints in recent years amid steep rents and lacklustre foot traffic.

But as Salakas notes, rapidly increasing online spending will further displace an already saturated bricks-and-mortar market, forcing many in the industry towards what could only be described as a shopping centre exodus.

“We’re going to see mass retail closures,” Salakas says.

Cutting dead wood ahead of likely recession

Retail expert and Queensland University of Technology professor Gary Mortimer says the grim reality of COVID-19 is that not all retailers are going to re-open.

“COVID-19 will accelerate the process of right-sizing,” he says.

“Incumbent retailers will have determined the growth of their online channels and will potentially say they may close five to ten per cent of our stores without actually accruing a material loss.”

“Retailers will see this as a chance to cut off the dead wood in their networks.”

Retailers like Accent and PAS Group are getting ahead of the curve; Mortimer says there will be other major chains announcing similar plans in the coming weeks as the sector comes to terms with the macroeconomic consequences of the pandemic.

“COVID-19 has had a significant impact on consumer psyche; we’re seeing those images of lines forming outside of Centrelink, we’re hearing of job losses, of people not being able to pay their rent,” Mortimer says.

With a recession likely around the corner, Mortimer predicts the fashion and department store categories will be hit hardest, compounding already difficult pre-coronavirus trading conditions.

Salakas agrees retail sector pain is just getting started, saying the lifting of stay-at-home orders and trading restrictions won’t necessarily bring Aussies back to shops.

“I don’t think people are going to go back to having full scale parties for a while,” Salakas says.

“We see the easing of restrictions happening but I don’t see our business picking up in line with that, people are still going to be apprehensive.”

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