Veteran retail expert George Minakakis, a global retail executive with over 25 years of experience, says the winners of the vicious economic downturn caused by the COVID-19 pandemic are going to be the larger retailers.
MINAKAKIS FORECASTS 50% OF SMALL AND MID-SIZE RETAILERS IN TROUBLE AMID COVID PANDEMIC
“The smaller and mid-size businesses are the ones who are going to struggle. How many of them will fail? I think 50 percent of them are at risk, that’s not to say all will fail.” said Minakakis, who is CEO of the Inception Retail Group. “I believe the vulnerability of each business depends a great deal on how consumers behave in the last part of this year and the resources each has to manage through this health crisis.”
“Even if your volume only returned to 90 percent of what it was pre-COVID most businesses can’t survive on it. Their cost structure won’t allow them to stay open for the long-term. You’re either borrowing money or spending your savings to keep a business afloat until things improve and increase your chances of staying in business. However, the timing for a recovery that I’m thinking and hearing that will take longer, it may not be until the early part of 2022 before things begin to move back to normal. The question then becomes, who will be in a position to survive? Economies are impacted by demand in the marketplace. Even with COVID, 100 percent of consumers are still shopping, they are just not shopping how and where they used to and are spending differently.”
“We did a survey, and the question was when are you going to be ready to go back to everyday shopping, 57 percent said I’m okay with a mask now. The other 43 percent said either when there’s no need for a mask, when there’s a vaccine or months after a vaccine. That’s a significant percentage of consumers that are making other shopping choices.”
“At the end of the day, the shift towards e-commerce impacts the unit economics of traditional physical retail businesses; they can’t afford not to be online. There other risks as well; you have the central business district, for example, with fewer employees in their workplace, less traffic in the local business district, which means retailers, restaurants, and other services are hard-pressed to stay open. Consumers themselves being apprehensive creates a reluctance to shop and socialize as they once did. When you couple all of this together, the risks to business failures could be as great as 50 percent.”
HEALTH EMERGENCY HAS POTENTIALLY ERODED CONSUMER CONFIDENCE LEVEL REQUIRED FOR SUCCESSFUL ECONOMY
There is also a ripple effect that's happening, and I believe that they are not being analyzed enough. Even if 57 percent of consumers are comfortable wearing masks and conducting normal shopping, it doesn't mean they're going to places like restaurants and theatres. This health emergency has eroded the overall economy from the confidence level needed to engage in the social activities that drove a robust business climate. Our social activities are critical in a business recovery. Without it, businesses lose revenue, they have to cut payroll, and employees have their hours cut or lose their jobs. That, in turn, impacts spending power, which lowers demand, and this has the potential to create a long-term downturn and even a deep recession. "It's a vicious circle, and it also goes to show you how vulnerable the consumer market is to shocks and this is a major shock."
"Small businesses are the most vulnerable with this issue right now," added Minakakis. "Your resilience depends on your volumes and your cost structure. If you're a million dollars a year in revenue and at 90 percent of it right now, you could last six-twelve months at this current pace. In general, we need to keep in mind that most retailers, for example, have operating profits between 4.8-5.0 percent, every one percent decline in revenue above 5.0 percent puts most businesses underwater. "But the lower the volume, the higher the vulnerability. It becomes problematic that way for smaller and mid-sized businesses."
SUCCESS OF UPCOMING MAJOR SHOPPING EVENTS WILL DEPEND HEAVILY ON ECOMMERCE
How critical are the next few months for many small retailers as we head into back to school shopping, Halloween, Black Friday, Cyber Monday, Christmas, and Boxing Day? Is it a make or break time for a lot of them?
Some of that will depend on the e-commerce capabilities of retailers. "This is where the rubber hits the road because right now, for example, you're bouncing back from closure. You've picked up a lot of pent-up demand. You're going to wear out that welcomed revenue gift fast. I call it low hanging fruit. Between September to December, you're going to start comping up to last year's numbers. I saw the recent retail numbers for Canada, yes, they are up, a lot of it is pent up demand. The business world I come from you couldn't consider that a win. Everyone needs to focus on the final four months of this year.
"Christmas has always been a make or break period for many retailers as has Black Friday over the last few years, as we've tapped into the U.S. tradition. I am concerned with the apprehension consumers have about the virus, the risk of a second wave, being in crowded stores and venues how many more will resort to conducting more shopping online this season? If you are a retailer with physical stores, you'll have to probably double or triple down on your efforts this season to breakeven for the year. We have to remember that most retailers have not made up the losses incurred because of the shutdown. Traditional stores, without a strong eCommerce presence and platform, their probability of getting to breakeven for the year is even weaker. To pretend that we will bounce back in the last quarter is overly optimistic." said Minakakis.
"I think Cyber Monday is going to be exponential. If you haven't got your act together by now, it's a challenge, and that goes for mid-sized and larger retailers. There are plenty of challenges, selecting the right inventory, overcoming supply chain issues, and knowing that retailers are cutting back their orders. Manufacturers and producers are scrambling to keep their costs in check as well. It will be a pleasant surprise if any business outside of essential services allowed to stay open during the shutdown, achieves 100 percent (of last year's sales). I believe reality is more like a minus 10-20 percent in comparable sales for the full year."
It's important to remember that we are still in a very fluid situation; many things can change quickly. I also believe that few things will go back to normal until there is a vaccine. Distribution of that will take time; that's why I believe a sustainable recovery doesn't happen until early 2022. Waiting that long is a lifetime for businesses that are trying to stay afloat.