Supply chain issues will impact cost of goods over next 6-12 months.

The past two years have exposed weaknesses in the retail and hospitality sectors. COVID-19 restrictions and border closures undermined the front facing operating model, preventing customers entering stores while also placing stress on inventory and delivery systems.

While the industry has coped well with some of the challenges thrown up by the pandemic, moving to online, click and collect and takeaway sales, there remain significant challenges which must be addressed as the country reopens.

Key Survey Findings:

  • 70 percent say supply chain issues will impact cost of goods over next 6-12 months
  • 76 percent say labour shortages will impact their business over next 6-12 months
  • 43 percent said ongoing COVID restrictions would impact profitability
  • 73 percent say re-opening of state & national borders is crucial to their business
  • 80 percent were confident they can get back to pre-COVID performance levels within a year, despite the challenges facing businesses

Impact of border closures

Border closures and other COVID travel restrictions have robbed the retail and hospitality sectors of a major part of their workforce. International students and foreign nationals on working visas, as well as skilled migrants, contribute around a third of the available labour in these industries. Widespread staff shortages have already been reported and with border restrictions expected to remain in place for various parts of the country attracting and retaining staff over the crucial holiday period looks to be a large obstacle for businesses.

This is borne out in the results of the recent KPMG Hospitality and Retail Reopening Survey. 76 percent of respondents told us that they expect labour shortages to impact their operations over the next 6-12 months. This is likely to significantly hinder the ability of business to bounce back to pre-pandemic levels and raises concerns about the shape of the labour market. While travel restrictions remain in flux, businesses need to reassess their contract offerings in a bid to boost local recruitment or take steps to insulate themselves against staff losses through digital automation or subcontracting work.

Digital automation is likely to become an increasingly important feature for the retail and hospitality sectors regardless, as the shift toward curated online experiences looks set to remain a permanent feature.

Supply chain challenges

Ongoing supply chain issues may also jeopardise businesses’ ability to cover COVID-related trading shortfalls through increased online sales. Bottlenecks in ports, a shortage of truck drivers and couriers, stretched inventory systems and international border restrictions have all contributed to rising costs and delays in product delivery.

70 percent of survey participants believe that supply chain issues will mean increased costs for consumers as businesses are forced to raise prices to offset higher transport costs. With the holiday season fast approaching, the demand for online delivery is unlikely to decrease materially as stores open with many consumers having already pivoted to new buying habits.

Return to profitability

However, the outlook remains positive despite these immediate challenges. 80 percent of respondents feel confident that a return to pre-pandemic performance levels is possible within 12 months. In addition, data from the ABS shows retail turnover experienced a strong rise in October and there is a positive trend across both retail and hospitality spending.

Whilst the impact of COVID continues to be felt across the sector, if consumer confidence remains strong, then those businesses with a careful focus on managing their supply chain and workforce challenges will be able to return to growth and profitability in 2022.

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