J. Crew is the first high profile retailer collapse amidst the Covid-19 pandemic. Even before the pandemic hit U.S. shores, the 73-year old retailer was already feeling the financial crunch with slipping sales and billions of debt. Store closings in late March were the last straw for J. Crew and possibly many other retailers around the world.
Recently, Aussie Disposals entered voluntary administration after suffering serious losses. The outdoor and work supplies retailer battled two major setbacks this year: first, the bushfire crisis, and, second, the Covid-19 crisis. However, even before the bushfires and the global pandemic, SmartCompany noted that many popular Australian brands already closed stores. In the past 12 months alone, EB Games, Curious Planet, Bose, Collette, and fashion retailer Jeanswest closed many of their shops. During the past decades, the retail sector has seen 114 prominent company collapses.
The retail industry is worth more than $325 billion, according to the Australian Retailers Association. It also employs more than 1.3 million in the country. These figures represent the significance of the retail industry to the Australian economy. Thus, insolvency of even one has a considerable impact on unemployment and economic activity.
Changing Consumer Spending Habits
Why then are retailers prone to financial collapse? They close their doors for various reasons but KPMG recognized that consumer spending habits have changed through the decades. When shoppers used to enjoy malls and bricks and mortar stores, now they enjoy shopping online through their mobile gadgets. Moreover, SmartCompany noted that consumer values have also changed to sustainable and ethically-sourced products.
Further, the world economy also shrank. Technological innovation has eased the entry of foreign goods into Australia. A few decades back, foreign goods used to be sold in retail stores by big companies who order in bulk. Now, consumers can buy products directly from the manufacturer and have those products shipped to the shopper’s home. The easing of worldwide economic barriers further stiffened competition in the Australian retail industry. Now, the competitors are not just located down the street but around the world as well.
Adapt to Combat Retailer Collapse
How can retailers better weather these changes and avoid financial collapse? SmartCompany suggests two things: adaptation and innovation.
There are disruptors in the industry that retailers must note. Delivery platforms, such as Uber Eats and Deliveroo, charge a percentage of the selling price, driving up the cost to consumers and cutting profitability on the part of the food business. Labour and rental costs have also increased dramatically through the years, and these two are overhead costs that a business cannot do without.
Retailers must invest on data and technologies to better understand and meet the expectations of today’s consumer, Alistair Leathwood, IRI’s Chief Commercial Officer, Asia Pacific, said, when asked about the issues contributing to the challenges facing the fast-moving consumer goods (FMCG) sector.
Leathwood added: “We know FMCG suppliers and retailers analyse data, but many struggles to create value from it. With the growth of data from the Internet of Things (IoT), the job to decipher it becomes ever-more complicated.
Innovate to Combat Retailer Collapse
Retailers should also note the increasing competition, not just with the store down the street, but with other retailers from around the world. An emerging trend called drop shipping has increased competition in the already competitive market. We have previously discussed here how businesses have used WhatsApp and conversational commerce to adapt to new consumer shopping habits.
Digitization is not going away. Turning digital is not just a trend, it has now become a necessity amidst the pandemic. All businesses, including retailers, face a changing market and the fittest survive because of the way they respond to these changes. In addition to adapting to new consumer spending habits and innovating towards a more data-driven and technologically advanced business process, Slater Byrne also recommend improving the quality of service or products, creating a target customer base, and building community.