Welcome to Navigating the New Normal – Grant Thornton’s podcast exploring trends in business and the marketplace.
My name is Rebecca Archer, and today I'm joined by Kirsten Taylor-Martin, Partner in Private Advisory at Grant Thornton, and Olivia Hitchens, Principal at Hitchens Advisory. Today we're talking about what businesses need to take into account and prepare for when coming out of lockdown. With nearly all of the states now announcing roadmaps out of lockdown or inching closer to their respective freedom days, opening day is a lot closer on the horizon.
Welcome Kirsten and Olivia.
Rebecca Archer
We know that lockdowns across the nation, particularly in New South Wales and Victoria, have placed a huge strain on businesses. What are your client’s pain points? Kirsten, can we start with you.
Kirsten Taylor-Martin
Sure, we've found that it's been very industry specific. So obviously tourism and hospitality have been heavily hit. Uh in Sydney, we really found in 2021, the construction industry was much heavier hit than 2020, and that was just due to them locking down. Although it was only a short period, it had a real ripple on effect. So, many in that industry had just sort of feeling they're coming out of it just now, that the effect of that short lockdown that they experienced. And your service industries like you're gym's, your hairdressers, barbers, beauticians, obviously their business doors closed, so it was a huge impact for them as well. Retail has been quite interesting I have found, so it's depended on whether you've had a really good online presence. So business is with a great online presence have done quite well. We also have found that without travel, people have had that discretionary spend. So pools, D. I. Y., lawnmowers – they've had huge trade because people have been investing their money into it. So they didn't actually forecast the sales – the levels – that they've had. So we've really seen some industries quite heavily hit, and then we've had other industries that have actually done really successful over this period of time. The bit that I found quite interesting have been the pivots. So we found quite a few of the restaurants. Now, I'm Sydney based, so can talk from our experience, but they changed to take away but they had a bit of fun with it. So with people exercising they had food that you could just grab on the go. So they really made a bit of fun of it and did quite well out of that as well. But one of the great pivots that has been in the press has been a business called Stage Kings.
So they did all the staging for concerts, grand prix, ninja warrior, and their business just absolutely came to a halt and they could not continue from that point on, and they actually laid off all of their staff. And then over one weekend, they decided to take one of the team members hobbies of making furniture and they did really the pivot of the decade and they turned that into a business where they started to make home office furniture. And so a business called IsoKing was born. And that business is just absolutely thriving. It has more employees now than what Stage Kings had previously. So they've come out of lockdown and they now have two businesses flourishing. So businesses that took that time and really and they tell a very honest story, they tried quite a few pivots and ideas, and a lot of them didn't work. But those that really tried to sort of pivot and make it through the other side. There's some fantastic stories out there during really hard times.
Rebecca Archer
Yes, it's amazing how creative you can get when you're forced into a situation that you really couldn't see coming. Olivia, what about you? What's your experience been?
Olivia Hitchens
Yeah, very similar to what you've just described. We've got a lot of retail clients in our database, in our network, so we monitor the retail industry quite heavily and there's been some absolute winners. And to Kirsten's point, it tends to be the people that have already got a really establish web presence. It's hard to pivot to online and to get the google ranking midway through a pandemic, often with a smaller budget to compete with the bigger guys. But those that were already online, those that were doing gifting and doing gifting really well. So that can be hampers, that can be flowers. We've got clients in that space that are up 1000% and even better than this time last year, and those sort of growth trajectories have been amazing and hopefully they can keep on top of the new client base and retain some of that demand. So certainly online retail has been amazing. We're seeing it soften a little bit now as people naturally want to return to the shops, particularly in Sydney, there's something exciting about heading off to a shopping centre again. But yeah, online has been great. Some of the things that have caused problems for our clients across a number of industries has been the inconsistency and the sort of slow rollout of government stimulus and support, and sort of the different approaches to retail leasing support and relief and commercial tenancy support. So there's been a lot of challenges and then I guess the impact on employees and standing down workers and trying to pivot different employees. It's been a really tough time and you know, those that have had their doors shut. It's been particularly hard and those that have been able to pivot and diversify have done okay and stayed the course and then there's a small handful of winners across selected industries.
But I think this last lockdown has been particularly tough, even on landlords, which a lot of people don't have sympathy for typically, but landlords have done it tough. They’ve been expected to shoulder a lot of relief and that hurts. It's been a tough period. But hopefully fingers crossed that was the last lockdown and hopefully some of the progress that people have made in terms of technology and redeployment and streamlining business can hang around and they can take that moving forward.
Kirsten Taylor-Martin
I think that's a really interesting point that Olivia's touched on. It was the real difference between the first lockdown and the second lockdown but the landlords and the tenants both received a bit of relief in the first time around. But the second time round there was really not much relief available, but there was no guidelines either. So it did make it quite tough for businesses.
Rebecca Archer
So now we have Victoria and New South Wales coming out of lockdown, and Queensland announcing that they will open their borders before Christmas. What should businesses be considering as they reopen? Olivia, let's start with you.
Olivia Hitchens
Logically, the first thing is going to be COVID-Safe Plans, and workplace sort of assessments to make sure that you can open safely, and that you have a really good understanding of the vaccine requirements that might be applicable to your industry. So the government has been in some cases helpful in giving retailers and hospitality venues, gyms, beauty businesses, a way forward in terms of what's expected at the 70-80% vaccine targets, in terms of customers and stuff. But some other industries are less certain. So you've got construction, you've got offices, you've got manufacturing, you've got behind the scenes logistics businesses where there may not be as prescriptive requirement around vaccines and COVID-Safe measures. Victoria's got more of a broader approach to sort of essential work. But what we're seeing in New South Wales, and we will see it in Queensland and other states as they start to open up and live with COVID, is that ongoing confusion around vaccinations, vaccine, passport checking in QR codes whether masks are required. Social distancing, all of that stuff is going to be really important to get your head around. And particularly for states like Queensland, Tasmania, WA they haven't had to live through this like New South Wales and Victoria have. So that's going to be a juggle for them. And each state is going to have to tackle things slightly differently. So if you're a national business with multiple offices or outlets, you're probably going to have different plans of attack depending on the state you're in. So that's going to be a big thing and that comes with it, HR our risks and issues and mitigation. So chatting to staff about how they feel about returning to face to face interaction. Talking to them about vaccination. Talking to them about other safe measures. Whether you are going to allow people to work from home if you've got an office space business, there's a whole bunch of HR work that needs to be done and it needs to be done well in advance of reopening. And often people think, oh well it's quite straightforward. My business is really small, but it's only a matter of time before you start to think about the fact that you might need an employee to travel to work. They might need to go off site to another business. And so what does that mean in terms of complying with that other businesses policy. They might need to travel to Victoria for work, from New South Wales. So do they need to be vaccinated to travel? And there's a whole bunch of HR work that needs to be done. We're definitely recommending most of our clients get some policies in place for clients, customers as well as employees, around the new normal. And looking again at HR it's a matter of redeploying resources that might have been moved through the lockdown period. So if you had employees that are typically frontline, let’s say retail workers, and you've moved them back of house into different roles, you now need to have these discussions about moving back into their original positions or not. So yeah definitely, HR and COVID compliance are really front of mind. And also, I'd say rent. So no matter what business you're in, if you've negotiated a rental arrangement during lockdown, you now need to start having these conversations with the landlords as things start to open up about potentially repaying some of the rent that you deferred and what it looks like as you start to escalate back up to normal trade and what's a fair rent. So there's quite a bit for people to do.
I'm sure Kirsten we'll talk about budgeting and financial planning but certainly from a legal perspective, there's a lot of policy and consultation work that we want people to be doing now if they haven't already started.
Kirsten Taylor-Martin
Yes we see that the big thing from a financial perspective, is doing a financial forecast. Budgeting is really a thing of the past. Looking back at the last 12 months is not going to give you a reflection of what the next 12 months is going to look like. You need to be looking forward. We're recommending a three month rolling forecast. But also, in the US, retailers when they came out of lockdown, saw a 15% growth. And in Sydney and in Victoria, we’re coming out of lockdown, and we're going straight into Black Friday, Cyber Monday, Christmas sales, and they're even forecasting that Boxing Day sales could really be a thing of the past. We could just have one big sales period pretty much from Black Friday through to Christmas. So businesses need to be forecasting what they expect their sales to be but also above expectations and below expectations, and what kind of stock do they need for each of those sales, but also the staffing requirements as well. So it's more important than ever before that they really plan and the next three months are going to be crucial, because then January when people can travel again, are we going to see a real drop off, particularly in retail as people start to travel again? So there's so many different scenarios that could happen. And it's really important that businesses start to map that out and plan and what does it look like because they need to start ordering stock, and in some instances, it's going to be too late to order stock now for the Christmas sales.
Olivia Hitchens
And one thing to add to that, even if you're not in retail, you will be impacted by the push in demand on retail in this time. So if you're in manufacturing or construction, and you're trying to get pallets of metal in on a container ship, good luck because you'll be fighting for that spot on that container ship with people trying to get in the Christmas sale merchandise and the festive sort of sale stock. So it's a battle and it doesn't matter what industry you’re in – all this pent up demand is now going to cause a rush on logistics and a rush on foot traffic to stores, and a rush on even food. We're even seeing some of our suppliers, customers that supply meat and wholesale produce, saying that it's not something you can turn on and off. So they shut down production, they make less eggs because the cafes and restaurants are shut and people aren't going out. And all of a sudden they're back open. I don't know how chicken farming works, but you've got to adjust supply and demand. So they're anticipating that it will be shortfalls in some produce, and it's going to be really interesting to see what happens. And I don't know what will happen when travel resumes, probably there'll be a rush on it and some of that spending will go offshore. But yeah, I think it's going to be a great Christmas period for a number of businesses
Kirsten Taylor-Martin
Oh and the hospitality industry as well. So we're seeing it in Sydney, and Melbourne is going to see it as well, but I tried to book a lunch four weeks in advance and the first five restaurants were totally booked out. So the demand on our hospitality is huge at this point in time. So they're going to have exactly the same issues in getting the supply, but also the staff. Pretty much every restaurant and cafe in my local area advertising for staff at the moment because they all let their staff go and now they're all trying to employ again. So it's going to be a huge rush in that period right up to Christmas.
Olivia Hitchens
Yeah, definitely. And we've also got a lack of visa and foreign workers coming over the Christmas period that would normally fill those positions in bars and cafes. And good luck getting a haircut. It's going to be crazy.
Rebecca Archer
So scenario planning and financial modelling are crucial. How far ahead should businesses plan and what might that look like as we enter the New Year?
Kirsten Taylor-Martin
Look, we're really recommending three months, but that it's a rolling forecasts so you keep going from there. Obviously they can't stop planning as of January. But I think for many businesses, they really need to focus on the high, they're going to get out of everyone coming out of lockdown, which will lead in Christmas. Then they need to start to anticipate what the potential fall off could be in January when people are on holidays and they can actually go on holidays. But once they sort of get through each month, they need to then add that next month in and really start planning because for many businesses, and we've touched on quite a few different industries, they're not really sure where the new normal is going to land. So particularly for manufacturing and a lot of the businesses that had a real boom. So your lawn mowers, your pools and everything. Well, what would new normal look like for them? They're not really sure. So they need to keep planning, but forecasting different sales levels because they can't forecast where they're really going to be. So they need to have different scenarios of what and what it will look like so that they're ready just in case.
Olivia Hitchens
Yeah, we’re seeing that too, even with mergers and acquisitions, transactions that we’re running at the moment where you're trying to sell a business off the market and if that business has been really great in COVID it's had a real uptake, that's actually a problem. Because buyers want to understand what the new normal looks like and depending on the industry, some buyers will say, well I think it's going to drop by 50% and others will say, well no, because you've acquired the customer now so whilst they may not spend as regularly that there's still a new customer, so it should be up on last year. So it's really hard to predict what the new normal will look like for some businesses, some will drop 10% some 20 some 50. It's really hard for that financial planning and I agree with you, you have to just keep doing it in bite sized chunks and reassessing constantly, because a budget, I mean you might as well just throw a dart at a dartboard in this environment.
Rebecca Archer
Now I've been seeing and hearing this phrase, revenge spending a lot lately. What exactly is it and how will it affect businesses?
Kirsten Taylor-Martin
It came out of a survey done by Shopper, and they have indicated that Australian saved $140 billion dollars during lockdown, which is interesting because all I ever heard was everyone talking about their online shopping habits during lockdown. But apparently a lot of money has been saved. But of the people that they surveyed, 59% said that they prefer to buy big ticket items, and actually go into a showroom of store and actually see it. So they're anticipating there’s going to be a huge amount of spending once Sydney and Melbourne start to come out of lockdown. But another interesting fact that the survey said that I think we need to factor in as well, is that people were spending 80% of their disposable income in a five kilometre radius. And that was just due to our lockdown and where we could move to. But we really saw a movement towards spend local, buy local, those real campaigns. But will those local businesses suffer now that we're seeing large shopping centres open, and also the city reopened. So I think that's another thing we need to factor in that they really had their shoppers captured, whereas now that they don't, that could have an impact for them. But yeah, I'd love to hear Olivia's view on revenge spending.
Olivia Hitchens
Yeah, I love the name revenge spending. I think I'm going to be the biggest revenge spender ever, because throughout lockdown you start to, you always want what you can't have, and what people want at the moment is to touch and feel to shop and browse and to socialize. So Bunning's for a while in lockdown was pretty much the only retail outlet that people got to go and look at things for a while when it was open. And Bunning’s saw a huge trade in people buying plants and paints and stuff and doing up their homes. I question whether people will still rush to burnings to buy those things on a Saturday and Sunday if they can rush to Westfield or the city or their or their local shops. So naturally there'll be displacement in where people choose to spend, and I agree that the five kilometre radius will probably suffer. It might do okay for Christmas because it's normally a bit of a pickup time anyway. But yeah, I think now that people have options, they'll definitely explore them. And that pent up spending energy; people will unleash. And we're already seeing that with restaurants and hair and beauty, and it's been busier than ever. So I can only imagine that if people haven't seen loved ones and they're going shopping for their presence, they're going to go 10 times harder, and buy more than they need, and they're going to have a more lavish Christmas lunch than ever, because they haven't had time with family. And they're going to buy 10 turkeys instead of one, whatever it might be the outlet that you choose. I can imagine that people will go a little harder than normal, definitely.
Rebecca Archer
And it’s sometimes even the impulse isn't it? That once you're there, back inside the stores, you might not go out with the intention of spending hundreds of dollars. But the frenzy and the excitement of being able to again, is probably going to affect a lot of people. So it'll be interesting to see how that pans out.
Now the government has said that it is up to businesses, whether they mandate their staff to be vaccinated. What are some policies that businesses should consider here, Olivia, let's start with you on that one.
Olivia Hitchens
Yeah, that was definitely the start of the current pandemic period. We saw the government sort of saying “over to you, business, we're not going to get involved here”. That was met with a lot of outrage for most business owners because it's a huge amount of pressure and it basically benefited no one other than lawyers, in that businesses were having to do an assessment of their workplace to see what was reasonable and whether vaccines were a necessary precaution to be COVID safe. And that's if you think about small businesses already suffering, to ask them to go and do a risk assessment and get expert advice around something as complex as forcing a vaccination on workers and customers. That was not a popular thing.
So indirectly, what we've seen is the public health orders kind of coming to the rescue without necessarily forcing vaccination on public as a whole, bit by bit. By little bite sized chunks, they've managed to sort of tackle industry by industry, using freedom leverage points to say if you want to go to the cafe, this is what you're going to have to do, if you want to travel. So what we've seen is by stealth effectively, vaccine rates have increased. The number of industries with prescribed requirements have slowly increased state by state. So, and that's resulted in really high vaccine rates, particularly in New South Wales. So it was a really tough decision for employers a little while ago. It's becoming less of an issue now that we're at 90% single dose. There's going to be a very small handful of people that aren't double vaccinated when things are completely back to normal. And we've got some dates around 1 December for New South Wales. So it's less of an issue.
But it's still something that employers need to be aware of because even if we get to 90% double dose, you still got 10% of your customers and your workers who may not be vaccinated and you need to have a plan. It's not as simple as saying go and get vaccinated or you're going to lose your job. It might be in some cases, but in other cases it might be that you need to find a way to accommodate them. Whether it's via remote working, whether it's via COVID tests or whether it simply doesn't matter come January or February. Whether the requirement to vaccinate might not be such an issue. It's hard to know, but you can't have no policy and we're seeing it now in our clients that have offices and manufacturing plants that aren't necessarily specifically caught by the directions saying to us, most of our staff are vaccinated anyway, but we've got a couple who aren't, how do we manage that? We'd really love them to come back in. What about our customers and clients and delivery people and third parties, can we ask them? Do we care? It's still something that needs to be tackled and the best way of tackling it is to have a written policy that you can update from time to time that you're consulting with your employees and your third parties and your customers to find out what they think and what they feel and what's important to them, and that you're constantly reassessing that plan and communicating it. The worst thing you can do is make a sweeping statement, or a quick decision, or exclude people without a process. That's where we'll see employment claims and some potential issues. But I think on the whole time is kind of healing this problem for us as things progress and people take up the vaccinations more.
But leaving aside vaccines, your policy should touch on other things, not just vaccinations. So vaccination is not the total solution. You'll need to have a plan for what happens if someone sick, if they present with symptoms, social distancing in the workplace, whether you're going to require masks. Even if they’re not required, are you going to check statuses and customers? What are going to do? So you need to have a plan and you need to have that plan now, and you should be communicating it.
Rebecca Archer
So just finally, are there any key tips or things that businesses should be considering as they look towards the future?
Kirsten Taylor-Martin
I'm going to leave everyone with four tips, three financial and then one for fun at the end. Firstly I just want everyone not to forget what they've learned during COVID. So cash is king and know your numbers. That was the first thing that we learned when COVID first hit and I just don't want businesses to forget it because we're still working our way through really tricky times. The second thing is now is the time to forecast and plan. Think of every possible scenario that could happen and, and have a financial plan so that you're ready for the good, the bad and the ugly. And we touched on it earlier. But demand for good staff is greater than supply at the moment, and we're seeing real pressure on wages and salaries. So if you think that in the future you're going to need more employees, don't leave it to the end or you could just end up with no staff. And the fourth one, which is my non-financial point, but enjoy. Finally you get to open your doors and welcome customers and it's going be crazy. It's going be hectic. But this is what you've been waiting for. So enjoy every minute.
Olivia Hitchens
That's awesome advice. I'm just going to tack on to that by saying in the all the enjoyment and the rush to get back to normality. We just really need to take from this, that anything is possible in the future? And COVID-19 hopefully is behind us or is at least manageable, but we just don't know and without being negative about it, we just don't know what's going to happen around the corner. So now is the time by all means enjoy, but definitely to start getting your ducks in a row. And from a legal perspective that is definitely looking at your structuring of your business. How are you set up? What happens if things go wrong for you in the future or you suffer some stress. Are you structured appropriately? Are your assets protected? Your personal assets? Do you have leases in your personal name? Have you given personal guarantees? What's the best structure for your business if you've done really well and you're thinking about selling your business in the future? Let's look at again the sales structure, let's look at succession planning. What happens if you're really sick and you can't come to work next year and you need some time out. Do you have insurance? Do you have someone who can step up to the plate? Do you have a shareholders agreement? One thing we've looked at constantly through this pandemic period is employment. Do you have contracts? Do you know what the terms of your engagement are with your employees and contractors. Can you redeploy them into other roles if you need to. Can you terminate them. So I think employment contracts, reviewing your lease is your key supply agreements. Supply agreements is a really important one because through the pandemic, so many people would say to us, you know, this supplier has just cut me off. They're not fulfilling my orders. What can I do? I've paid them like I get my money back.
And we would say, what's in the supply contract? And nine times out of 10 there wouldn't be one or they couldn't put their hand on it. So I think really taking some time, maybe once the New Year kicks over to reassess your structure, your contracts, your risks. So key risks. Key person risks. Incentivizing employees to make sure they're locked in. Just really holistically looking at the financial but also the structural and legal aspects of your business and doing a little risk assessment sounds really boring and you just want to go out and live life, but I think we should take some stock from what's happened and get prepared.
Rebecca Archer
That's extremely important advice. Thank you so much Kirsten and Olivia for your time. Now, can people track you down on LinkedIn or phone or email if they'd like to talk more?
Olivia Hitchens
Definitely for me. Olivia@hitchadvisory.com or hitchadvisory.com is our website. And definitely reach out for any legal questions you've got as you move towards reopening, we look after any businesses small to large. So an individual's family businesses. So give us a yell if you need any help and have a great Christmas sales period.
Kirsten Taylor-Martin
Yeah, absolutely. Please reach out. I'm really passionate to make sure businesses do come through the other side of this. So any questions or any way I can help. Don't hesitate to contact me on email or via LinkedIn.
Rebecca Archer
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