Retail sector braces for more pain as PAS Group collapses

Retailers will need to pull out all the stops to survive the looming recession after another major Australian business succumbed to the coronavirus.

PAS Group – the parent company responsible for clothing brands Review, Black Pepper and Yarra Trail – entered voluntary administration on Friday.

The announcement leaves the company’s 1300 employees and national 225 locations in jeopardy, and marks the latest victim in an ongoing ‘retail apocalypse’ that recently claimed discount department store chain Target.

PAS Group’s chief executive, Eric Morris, acknowledged retail’s continuing war of attrition when he announced the company would be placed in administration.

“The Australian retail sector was already facing significant challenges prior to the COVID-19 pandemic,” he said.  

“Against the backdrop of many retailers closing their doors, we have taken proactive action to put PAS Group in the best possible position to navigate through the pandemic and subsequent economic challenges.”

PAS Group not alone

More businesses are expected to meet the same fate.

Brian Walker, chief executive of business consultancy The Retail Doctor, cautioned Australia’s retail store numbers could fall by as much as 15 to 20 per cent in the next two or three years.

Those losses will come despite a retail recovery that is – in some sectors – under way already, he added.

Clothing, footwear, household goods and entertainment retailers will be particularly vulnerable.

“In April retail spending was down 18 per cent but that was mainly felt in the specialty retail sector. Online has seen high growth with some online retailers experiencing sales three to four times higher than in the same period  a year ago,” Mr Walker said. 

“The virus had extended the downward trend being experienced in department store sales with David Jones saying it will close some stores just the latest evidence.

“A way to look at that [is] back in 2014 when [then Myer CEO] Bernie Brooks suggested buying David Jones it had a market capitalisation of $1.7 billion. Now it is $60 million,” Mr Walker said. 

“During the crunch, retail associated with homewares and supermarkets have done really well as people prepare then maximise their home environments for lockdown. Groups like Bunnings and rebel with its home gyms and other online operators did well,” he said.  

The virus has exacerbated trends that were already under way and would change the nature of shopping centres in coming years. 

“I would estimate 15 to 20 per cent of existing stores will close as online grows. Australia has the third highest exposure to retailing behind the US and Canada with a store for around every 250 people and that won’t be able to be maintained.” 

“Shopping centres will be less big boxes of stores and will have to think more about experiences and social events. They will have to cater more for click and collect [people buying online and collecting] and have more dark stores [essentially warehouses that allow collection but not conventional shopping].” Mr Walker said.

Thousands of jobs at risk

Research from Deloitte Access Economics found the retail sector will be among the hardest-hit for job losses.

The group forecast more than 10 per cent of workers in the sector will lose their jobs – with employment numbers tapped to stay below pre-coronavirus levels until 2025.

More than 1.25 million Australians are employed in the retail sector, making it the country’s second-largest industry.

And since March 14, 6 per cent of those workers (75,000 people) have disappeared from the sector’s payrolls, according to Callam Pickering – APAC economist with global jobs site Indeed

“Those numbers will obviously improve once the economy reopens and hiring activity picks up,” he told The New Daily.

“Yet COVID-19 [coronavirus] will leave a lasting impression on retailers – every day of closure or lacklustre sales brings some retailers, particularly smaller ones, closer to bankruptcy. 

“The sector has struggled for a number of years, before COVID-19, and so will be particularly vulnerable to the current situation.”

Not all retailers have been affected equally however, with supermarkets and other essential goods providers holding up “reasonably well” while other businesses have struggled to stay above water.

“When budgets are tight – or job security is questionable – households tend to pull back on discretionary spending,” Mr Pickering said.

“They will keep spending on essentials, such as food, but will delay purchases that are not immediately necessary. 

“For example, spending on clothing & footwear was around half its level in April this year than it was a year earlier. Big ticket items, such as motor vehicles, have taken a big hit.”