Christmas rush or retail crush? Sector profitability and rent relief beyond lockdown

The Government’s recent announcement that Auckland retailers can finally open their doors will have caused a sigh of relief for many. Whether your operations are solely based in Auckland or whether part of your income comes from there, or even if some of your business comes from domestic tourism, the ongoing lockdown in Aotearoa’s biggest city coupled with a nationwide 5-week pause in August has made this one of the toughest years for retailers yet.

New Zealand’ businesses’ responses to BDO’s 7p diagnostic tool have overwhelmingly focused on profit, which they have rated as only second behind purpose as their biggest focus for the next six months. Alert level restrictions have allowed time for retailers to pause and consider how they can make their business as profitable as possible, especially with the Christmas rush about to begin.

So what areas of your retail business can you review and tighten to make sure you can maximise profits post lockdown?

Streamlining your product offering without compromising the customer

The biggest pitfalls when it comes to retail profitability include supply chain cost increases, having bloated product and service offerings, using overly aggressive discounting to encourage customers and sub-optimal pricing.

To counter these issues, it helps to take the time to consider who your ideal customer really is and what it is that they’re buying. Where does 80% of your profit lie? This is where you want to focus – and in so doing you may be able to reduce the number of products or services you’re offering (without compromising customer choice or needs). A streamlined product offering means a less complex supply chain, which is particularly useful with global logistics problems and product shortages set to continue well into the end of 2021 and beyond.  

There will of course be a boost to cashflow when retailers open their doors. It’s important not to overspend when that money finally starts flowing in as the ability to replenish stock will be vital to ensuring you can meet your customers’ needs throughout the Christmas period. It’s a good idea therefore to lock in any favourable changes to creditor terms now and remember not to reduce your prices so much that it causes cash flow issues further down the line. Taking the time to review and work out whether you really need to introduce big discounts and how much by will also be a useful exercise.

Making the most of rent relief

Finally, retailers will have welcomed the recent announcement around rent relief for retailers. This is a real win for all businesses who have battled the challenges of leasing issues due to COVID-19. Changes to the commercial leases in the Property Act to enable rent relief are to be retrospectively applied from 18 August 2021 – the first day of the current lockdown. Those with rent relief requirements are now able to start negotiating with their landlords.

The changes include:

  • A requirement to consider a commercial tenant’s loss of income in determining what a ‘fair proportion’ of rent relief would be.
  • A requirement that the parties to a commercial lease with this implied clause must respond to each other within 10 working days of communication about the clause.
  • Clarification that parties may seek to resolve disputes through mediation or other forms of alternative dispute resolution before a referral to arbitration, and that the Disputes Tribunal’s jurisdiction is not excluded as an option.

The last few months have been incredibly hard for retailers. But taking the time to pause and review your business plan and strategy means you’ll be best placed to get your retail business back to thriving as we move onto the next stage of New Zealand’s COVID-19 response.

For more help, check out our Retail Thrive Guide for more insights on business planning, strategy, and risk minimisation, and contact your local BDO adviser if you’d like to know more.

Looking after yourself

We understand this has been an incredibly difficult time for retailers. Xero small businesses, their employees, and their families are able to access the Xero Assistance Programme (XAP) which offers free, confidential access to face-to-face, telephone, live chat, and online counselling. Xero has announced XAP is now available to all Auckland small business owners.

For further support, for yourself or others, visit the Mental Health Foundation of New Zealand website.