Retailers reconsider need to reopen all stores as COVID-19 disruption sends shoppers online

Press/Media: Expert Comment


Doors reopened at the Platypus shoe store in the Melbourne Central shopping centre last week, but it wasn't the first time staff had returned to work since it shut in late March.

Staff had been working behind closed doors to fulfil online orders using the store's inventory — operating a so-called dark store.

Platypus is part of Accent Group, a footwear retailer that runs chains including Hype DC, Sketchers and The Athlete's Foot.

Accent chief executive Daniel Agostinelli says the day he had to shut around 500 stores and stand down 5,000 staff across Australia and New Zealand was the worst of his life, but in the following days, online emerged as a lifeline.

"Almost three to four days after our shutdown, we started to notice that our online sales were growing exponentially," he said.

Key points:
Australia Post says online shopping has increased by 80 per cent compared to last year
Footwear retailer Accent Group operated 'dark stores', fulfilling online orders while shops were shut to customers
"One in three of the consumers we surveyed said that they would continue this behaviour," says Monica Wegner from Boston Consulting Group
In an update to the stock exchange, the company said its online sales reached between $800,000 and $1.1 million per day in the last two weeks of April, compared to an average of $250,000 prior to the shutdown.

Dark stores allowed the group's store-based inventory to be used to fulfil online orders until shops reopened.

Stock lines that were at risk of being dated by the time bricks and mortar stores were open were discounted.

"In a lot of cases, the basket size, or the size of the purchase, is actually stronger online than it is in stores, which is something very new that we're learning at the moment," Mr Agostinelli said.

"It was a seismic shift and it continues today, which is the new concern for all retailers moving forward, about how many bricks and mortar stores do we need given the shift to online.

Shoppers forced online may stay online
The way Australians shop has changed since restrictions to curb COVID-19 have been in place.

Foot traffic in shopping malls and strips has plummeted — in the week starting April 6, it was down 93.6 per cent compared to the same time last year, according to Kepler Analytics.

The decline has since moderated, but in the week beginning May 11 it remained 71.7 per cent below last year.

Australia Post has been on the front line of the shift in consumer behaviour, and based on its deliveries data, it says there was an 80 per cent increase in online shopping over the eight weeks to May 15, compared to last year.

The peak was around Easter, making it the biggest online shopping weekend for Australia on record, overtaking Black Friday and Cyber Monday sales.

Working from home has also changed shoppers' behaviour, with Australia Post finding an increase in orders placed between 2:00pm and 5:00pm, and a decrease in those placed between 7:00pm and 10:00pm.

One shopper forced online in recent weeks was Will Warner, who normally prefers to shop in store for hardware supplies.

"One of the times I usually get my shopping done has been pretty late on a Thursday night and I found that some of the retailers, they weren't operating at that time anymore, they were shutting a lot earlier," he said.

Living in inner Sydney, he was able to order items online on a Thursday night and receive them by early Saturday morning, and now the initial hurdle of signing up has passed, he's more likely to order online again.

"It's one less trip I have to make, and parking, so it was easier once I'd gone through the process. If we can continue receiving deliveries as quickly as they've started to come through now, that'd be great," he said.

Boston Consulting Group (BCG) surveyed Australian consumers in late April and found the percentage of people who shopped online had increased to 76 per cent, compared to 39 per cent four years ago.

"This does feel like a tipping point," BCG partner Monica Wegner said.

"There's a lot of people who have been forced into a new behaviour, and one in three of the consumers we surveyed said that they would continue this behaviour, indeed they would increase their digital purchasing over the next 12 months."

The BCG survey found more older Australians shopped online for the first time during April, and people who had shopped online before were purchasing items or services from new categories.

"We've seen that a lot of our baby boomers and our silvers, those people in our population above 52 years of age, have really increased their first time digital purchases," Ms Wegner said.

Online investment needed at same time total sales fall

The shift to online during coronavirus has accelerated what has been a relatively slow uptake in Australia.

Jana Bowden, an associate professor in marketing at Macquarie University, says there has previously been a reluctance on the part of both retailers and consumers to take up online purchasing.

"Once COVID-19 hit, we've seen a rapid shift in both factors — retailers are starting to invest in their online resources, recognising that consumers are now not shopping in store… and consumers are becoming gradually more comfortable with that experience," she said.

Some retailers had invested in their online infrastructure in recent years and were prepared to offer incentives such as free shipping, free returns and 'buy online, pick up in store' services to attract shoppers.

Others were unprepared and are now having to pour cash in, at the same time consumers have lost income and are reducing discretionary spending.

"Being able to clear stock at a discount obviously leads to significant losses for the retailers, whilst at the same time they're having to invest in their digital platforms, so there's a compounding effect," Dr Bowden said.

Retailers exiting leases as they reconsider bricks and mortar future
As retailers invest in their online platforms, they'll be looking for savings elsewhere, including on rent.

Some companies have already chosen not to renew expiring leases and threatened further store closures, as they negotiate with their landlords.

Premier Investments, the group behind Smiggle, Peter Alexander and Portmans, did not pay rent for the period its stores were shut and noted that 70 per cent of its store leases in Australia and New Zealand had already expired, giving it the option to shut those stores.

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Meantime, Accent Group will close 28 stores when the leases expire over the next six months.

"We would like to keep as many stores as we can open but the future for all of us as retailers will be, well, what do those new metrics look like and what makes a viable store work for us, given that we see a major shift moving to online sales," Daniel Agostinelli said.

"Some stores will simply have to close, where we can't get the metrics right."

While online is making up a higher percentage of retailers' sales, it comes off a low base, and overall sales of clothing and footwear tumbled in March.

A number of retailers had entered voluntary administration and begun shutting stores even before the hit from the coronavirus downturn.

"We will see significant store closures, we will see a reduced offering in terms of brands that are available in the market, we've already seen that occur through the 2019 period, that will continue," Dr Bowden said.

The Boston Consulting Group survey found half of respondents had cut their overall spending during April, and a similar number expected to spend significantly less over the next year.

"Companies need to both look at the opportunity that's posed by digital shopping behaviours, but also look at that in the context of overall spending behaviour coming down," Monica Wegner said.

Mr Agostinelli is preparing for a long recovery.

"We're as worried as every other retailer. What does the future look like?

"We feel it'll be a slow gain back to where we were, even close to where we were. By that we mean at least 12 months."

Period20 May 2020

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