6one5 Retail Consulting head Bill Rooney believes now is the time to start preparing for March 28.
How Fashion Retail Should Prepare for the Stimulus Packages Ending
The end of the stimulus package on the 28th March 2021 couldn’t occur at a worst time for fashion retailers coming at the end of the traditional slow months of January to March, 12 months of Covid disruption, less revenue due to the recession, lock downs, and changing shopper habits.
Leaving aside trading up to Christmas retailers have 3 months from 1st January 2021 to 28th March 2021 to plan for 28th March stimulus ending.
For retailers not receiving JobKeeper its worth reviewing your strategy and options hopefully for a post-covid world
In this article I have set out a recommended timetable for action and co-opted the help of Louisa Sijabat a registered Business Restructuring, Safe Harbour and Insolvency expert to answer some critical questions and explain insolvency terms such as “Safe Harbour”, “Voluntary Administration” and the types of Restructuring available that potentially you may want to consider.
Implication for Fashion Industry
With JobKeeper finishing on the 28th March 2021 there are implications for retailers, specifically:
- When JobKeeper finishes will a substantial number of employees lose their job and end up unemployed. For all retailers this may have a serious impact on consumer confidence and sales.
- To be eligible for JobKeeper actual sales for the September 20 and December 20 quarter need to be 30% less than for the comparable quarter in 2019. Those retailers recording 30% less sales will struggle to be profitable post JobKeeper and should seriously consider their options and their short and long-term viability.
- For retailers that are generating between 0% (break-even) and 5% Net Profit currently a restructure may be the best way to get the business growing again.
- For retailers generating profits exceeding 5% Net Profit, congratulations and think about ways to further improve profit via rationalizing store numbers and digitizing the business to reduce costs.
With a vaccine expected to be rolled out early in 2021, the good news is that growth and reduction in unemployment will start, the bad news is that there is expected to be a lag effect that retailers will need to navigate through.
The 3 Type of Fashion Retailer Post Stimulus
For each of these Fashion Retail types we have listed below actions and a timetable to allow them to be in a position post stimulus to move forward with confidence.
Type 1: Zombie Retailers
These are fashion retailers where the stimulus package and low interest rates are allowing them to stay in business when the market would normally force them to close. What defines a “Zombie Retailer” includes:
- Excess stock/ low stock turns
- Declining sales and gross margin over several years
- Sales have declined 30% + for September and or December 2020 Quarters
- Net Losses or break even
- Ecommerce sales below 10% of total sales
- Limited surplus cash flow
Type 2. Hope & Guess Retailers
These are fashion retailers that believe with some help they can restructure their business however there are risks and uncertainty involved. The executives desire to move beyond hope and a guess to a more certain future. What defines a “Hope & Guess “Retailer include:
- Excess stock/ low stock turns
- Declining sales and gross margin over several years
- Too many stores a proportion of which are making losses or minimal profit
- Break even or at best a small profit
- A growing Ecommerce business
- Tight Cash Flow
Type 3. Transitioning to Digital Retailers
Most Australian Fashion Retailers are somewhere along the journey to becoming a digital/modern retailer that will open up massive cost reduction and revenue growth. Here restructure is the order of the day. For the last 12 months Covid has delayed much needed updating of processes and systems as survival overtook the digital restructure.
I can name any number of high-profile retailers with turnover in the hundreds of million to billions that have not implemented a world class ERP System despite talking about it for many years a key ingredient to becoming digital, this has now been delayed a further 12-18 months.
What defines a Transitioning to Digital” Retailer include:
- Too many stores
- Overbuying leading to excessive stock and declining margins
- Cashflow tied up in stock and leasehold improvements
- Need to further invest in technology
- Further investment in Ecommerce and Supply Chain required
Critical Questions for Fashion Retailers 2021:
Quite a few retailers will be in a precarious position in 2021 or are unsure whether they will be able to survive and prosper. In these circumstances we recommend you seek outside help to lower the risk and potential personal exposure.
If you have questions around reducing the number of stores, cash flow and bank relations, excess stock, cost reduction and viability after the withdrawal of JobKeeper it is better to seek outside help to complement internal resources to lower the risk of making a mis-step.. Many retailers are having difficulty with landlords who are inflexible when it comes to rent reductions its time therefore to explore options.
Retailers typically say when confronted with an uncertain 2021:
- I can do it myself; I do not need help or a 2nd opinion
- I can do it myself however I need specific help dealing with the bank, landlords, suppliers and so on
- I am uncertain if we will survive so I would like to consider “Safe Harbour” ASIC provisions or Voluntary Administration to protect myself and to restructure
- Can I survive beyond JobKeeper do I restructure or liquidate?
Recommendation
Depending on what type of fashion retailer you are will depend on your options. Typically, we would recommend the following course of action:
- Zombie Retailers: Safe Harbour & Restructure / Voluntary Administration & Restructure /Liquidation
- Hope & Guess Retailers: Retail Expert Advice / Safe Harbour & Restructure / Voluntary Administration & Restructure
- Transitioning to Digital Retailers: DIY/ Retail Expert Advice / Safe Harbour & Restructure / Voluntary Administration & Restructure
- Too many stores inflexible landlords: Voluntary Administration & Restructure
- Bank and Cashflow Issues: Retail Expert Advice / Safe Harbour & Restructure / Voluntary Administration & Restructure
- Stock Issues especially if at a high/critical level: : Retail Expert Advice / Safe Harbour & Restructure / Voluntary Administration & Restructure
Timetable:
Here is our recommended timetable to review and revitalise your fashion business post stimulus package:
