Lessons of lockdown: jewellers face the future of retail

For the retail sector, the impact of the COVID-19 pandemic was felt instantly. As fear and panic gripped the nation, consumers rushed to stockpile essentials, while discretionary spending dived to levels unseen in decades.

Many retailers – particularly in regional areas – watched helplessly as their hopes for a swift recovery from last summer’s horror bushfire season were extinguished.

Without explicitly banning non-essential retail, government lockdowns effectively prevented bricks-and-mortar businesses from trading by confining Australians to their homes. At the same time, swathes of the population were furloughed, made redundant, or had contracts cancelled.

These new dynamics created – or accelerated – a number of trends that will continue to affect the Australian retail landscape in the months and years to come, altering consumer behaviour as well as the practicalities and logistics of retail sales.

Speaking on the podcast of retail futurist and Jeweller contributor Steven Van Belleghem, Jon Bird, CEO of marketing and communications agency VMLY&R (Australia and New Zealand), said the pandemic had “an extraordinary effect on retail”.

“A lot of change has been compressed into an extraordinary amount of time – a lot of change, from a behaviour point of view, which has been influenced of course by COVID-19 and the fact that people have been locked down in their homes, remote working, having to pick up on digital technologies, forced to change,” he explained.

Bird defined the changes to retail in three categories – ‘hands’, ‘head’, and ‘heart’: “The hands point of view is how physical retail will be different, particularly around touch; from a heads perspective, how the digital ‘smarts’ around retail are rapidly changing; and from a hearts perspective, how the emotions around consumption and shopping are shifting.”

Over the course of the lockdown period, these changes have not been ignored by retailers; rather, many business owners have been forced to re-evaluate their approach and make efforts to adapt to a new reality, shaped by forces beyond
their control.

Economic fallout

According to the Australian Bureau of Statistics (ABS), retail turnover figures saw their largest fall on record in April 2020. However, preliminary figures for May surged 16.3 per cent, the largest rise in the 38 years of the survey.

Yet Andrew Hanlan, senior economist Westpac, noted that the “wild ride” still resulted in retail sales 0.4 per cent below their pre-COVID level, adding that “weak income growth and fragile [consumer] confidence” would continue to weigh down retail in the coming months.

Indeed, all Australian states and territories recorded rising unemployment in May 2020, with the largest losses recorded in Victoria, New South Wales, and Western Australia; the national unemployment rate stood at 7.1 per cent, an increase of 2 per cent from February 2020.

The combined impacts of the pandemic have led Australia into a recession for the first time in 29 years, and experts have cautioned against the retail sector relying on the ‘sugar hit’ of the Federal Government’s JobKeeper and enhanced JobSeeker payments.

Combined, the packages are paid to approximately 7.6 million people and have enabled many businesses to continue operating by boosting consumer spending.

However, the payments were, at the time of publication, due to expire on 27 September.

Speaking at a Senate committee meeting in late May, Dr Philip Lowe, governor of the Reserve Bank of Australia, cautioned, “It’s going to be very important to keep the fiscal support going. It’s very important that we do not withdraw fiscal stimulus too early.”

He added, “Even as the recovery gets under way, there will still be a shadow cast by the pandemic. As a country, we will need to turn our minds as to how to move out of this shadow. A reform agenda that makes Australia a great place for businesses to expand, invest, innovate and hire people would certainly help.”

Paul Zahra, CEO of the Australian Retailers Association (ARA), said that while the retail sector was “shifting out of crisis towards recovery”, the economic recession indicated that “recovery will be slow”.

The ARA has called on the Morrison government to extend JobKeeper to selected retailers until February 2021, in order to support vital pre- and post-Christmas trading.

Speaking to the Australian Financial Review, Zahra said, “At this stage we’re facing a cliff and we’d prefer a slope. Retailers plan to batten down the hatches anyway, this will give them some relief to get them through this all important trading period.”

Indeed, many jewellery retailers have been among those to access the JobKeeper program. “We are lucky to be in Australia – I expected this to be a lot worse,” said Michael Sobbi of Linda & Co Designer Jewellers in Sydney.

“I think with the government grants and strong online sales, we are riding the wave to normality.”

The importance of having a financial buffer in place has been noted by a number of jewellery retailers and retail experts.

Steven Jansen, owner SS Impressions Jewellery Design Studio in Perth, advised, “Always have a rainy day fund – in both monetary and materials areas – for at least six months.”

Nikhil Jogia, of Jogia Diamonds, also based in Perth, added, “Businesses, in any industry, that were struggling with weak balance sheets have faced the most trouble. Therefore, now more than ever would be a good time to build a stronger, more resilient balance sheet – whether that means lowering debt or increasing cash levels.”

Meanwhile, Van Belleghem emphasises flexibility: “Forecasting and predicting business has become almost impossible. Today it is important to think in terms of scenarios. Be ready to reinvent your business.”

Ben Manning, director Utopian Creations in Adelaide, said, “We have been working hard to improve the way our business functions – from improving our POS system right through to renovating our store and adding to our website. It’s an important opportunity to focus on the things that will help my business succeed once the country opens back up.”

“Landlords need to remember we are in a recession. Playing hardball with tenants during this unprecedented economic period is a lose/lose outcome. It’s a false economy for landlords”

Paul Zahra, Australian Retailers Association

One of the most significant expenses on retail balance sheets is rent and the COVID-19 pandemic has thrown the long-standing conflict between retailers and landlords into even sharper relief.

The charge was led by Premier Investments chairman Solomon Lew and CEO Mark McInnes.

As Australia’s largest retail tenant, Premier – which controls brands including Peter Alexander and Smiggle, and operates more than 900 stores – refused to pay rent during the March-April lockdown and has since negotiated to pay only a percentage of gross store sales, rather than fixed rent.

Other retailers, including fashion chain City Chic and jewellery retailer Michael Hill International, have reduced their store networks as a result of fruitless landlord negotiations.

While smaller retailers may lack the leverage of larger tenants to achieve rent reductions, the Australian Financial Review recently noted, “The empty shops left by store closures and the inevitable retail collapses we’ll see in the post-COVID-19 environment will increase the power of retailers to extract better deals from landlords."

It’s a point that is particularly pertinent in the case of shopping centres.

“Landlords need to remember we are in a recession. Playing hardball with tenants during this unprecedented economic period is a lose/lose outcome. It’s a false economy for landlords to try to extract rent from retailers that need their cash reserves to survive the COVID winter,” the Sydney Morning Herald quotes Zahra as saying.

For jewellery retailers, buying groups can provide assistance in seeking rent reductions, as well as financial strategies for managing stock.

Swift shift online

Omnichannel retailing is hardly a new concept, yet the tactile appeal and large costs associated with jewellery have seen the category lag behind others in selling through digital channels.

“The e-commerce side of many, mostly independent jewellery businesses is not nearly at the level of where it should be,” said Jogia.

“I think many jewellers are still stuck in the 20th Century and think the only selling channel should be in-store – or they don’t want to risk competing with long-established online players.”

Yet perhaps the most notable trend to emerge from the pandemic was the shift to online retail, particularly in Australia and the US.

“E-commerce penetration in the States went from 16 per cent pre-COVID to 27 per cent post-COVID. In Australia, there was an even more dramatic up-tick because I think we were a little slower – 10 per cent pre-COVID, to 24 per cent,” Bird said.

The assertion is supported by Australia Post data, which reveals online retailing has increased by 80 per cent during the pandemic, with more than 200,000 consumers shopping online for the first time in April.

Van Belleghem notes, “In the last few months, digital has surged in nearly every aspect of our lives. The barriers for digital usage have lowered significantly and will never be raised again.”

“A lot of change has been compressed into an extraordinary amount of time – a lot of change, from a behaviour point of view, which has been influenced of course by COVID-19”

John Bird, VMLY&R Australia & New Zealand

Recent financial reports from Michael Hill International (MHI) and Pandora Jewelry indicated online sales had dramatically increased in the first quarter of 2020. In the three weeks to 14 May, MHI digital sales outperformed its previous record week, which fell in the 2019 Christmas trading period.

The company launched a number of digital initiatives during the seven-week closure of its store network across Australia, New Zealand and Canada, including virtual appointments, a WeChat ‘mini store’, shoppable Instagram feed, and an online video hub.

Meanwhile, the Pandora Jewelry Interim Financial Report for Q1 2020 noted, “Online performance continues to be strong, and the channel appears highly resilient during market lockdowns,” with sales increasing by 29 per cent over the first three months of the year despite disruptions in China.

Read more: What have jewellers been doing during the COVID-19 pandemic lockdown? »

Discussing the overall trend toward e-commerce, Elle Hill, CEO of US-based jewellery retail consultancy firm Hill & Co., said, “One of the biggest long-lasting effects that this is going to have on our industry is the awakening of how much can be done online. 

“They say necessity is the mother of invention, and really there was no option [during the lockdown]. All of a sudden, an industry that felt [consumers needed to] ‘look, touch, and feel’ in order to ‘know, like and trust’ had to operate entirely within the confines of a digital footprint.”

New Zealand’s level-four lockdown was stricter than any regulations implemented in Australia.

Paul Taylor, managing director Paul Taylor Jewellers in Auckland, New Zealand, said, “During New Zealand’s lockdown we were completely closed from 24 March and reopened at level three on 14 April. Our internet presence has been in overhaul during this period and I am confident this is going to be most important in times ahead.”

Andrew McArthur, owner McArthur’s Jewellers in Sapphire, in Queensland’s Gemfields region, said, “The area we have been focusing on is e-commerce: getting our shop up and running on Etsy, Instagram and Facebook Marketplace.

“Also, looking into many other aspects of online shopping – for example, how customers can pay for their goods, like PayPal and Afterpay. My wife Lorna has learnt many skills on the computer setting up the online shop and doing free skills workshops online with TAFE.”

Gil Watson, director Cybelle, which operates in Sydney and Melbourne, said the most time had been spent on “re-photographing many of the jewellery pieces on the website, especially those that were put up in a hurry and didn’t get the full ‘glamour’ treatment, plus rewriting many of the website descriptions to get them sounding more interesting.”

She added, “I’ve worked hard on the brand’s Instagram image, and we’re now getting more visits to the website that come straight from Instagram.”

The team at Silkoh, in Melbourne, listed “e-commerce, social media, marketing, dropshipping and stocktaking” as the key focus points during the isolation period, with an emphasis on gaining skills in bookkeeping and e-commerce management.

Opening channels of communication

Hill notes that digital communication is another area of opportunity for jewellery retailers that should continue to embrace now that bricks-and-mortar stores are reopening.

“The lines of communication have really improved in the virtual world – from virtual try-on sessions to communicating through Instagram, your Facebook page, your website, your newsletters.

“Now that the stores will be open and people will come back in, we shouldn’t stop using digital communication to listen to our customers – and to listen to them.”

Hill emphasised the need to communicate essential information, such as store opening hours, through digital channels that customers use, as well as to continue digital engagement activities such as webinars.

Indeed, Sue Gaylard, owner of Avenue J Jewellery in Mooloolaba, Queensland, said, “Our main focus has been utilising social media and remaining interactive with our clients and followers.

“We have been very appreciative of our loyal customers – many have still chosen to make Avenue J part of their special celebrations. We pride ourselves on continuing to build relationships with old and new clients.”

Digital communication and social media marketing were also a key focus for Mark Evans, of Mark Evans Fine Jewellery on the Sunshine Coast. “I have had quite a bit of consultation with a local media agency regarding my online presence, with my business Instagram and Facebook pages – [things like] setting up regular posts, the style of the images and the content needed to make it engaging. I realise now I had become a bit complacent – being busy, I had not kept up with this side of my business,” he said.

While many smaller retailers have limited budgets for improvement, Bird advises, “Think about the customer experience perspective and then just utilise the available systems that are affordable.

"You really have to be creative and think laterally in this case. But not looking into the opportunities of technology is simply ridiculously dangerous.”

However, while the existing trend toward e-commerce has been well and truly accelerated by the pandemic lockdown, it seems consumers are already returning to bricks-and-mortar stores.

Physical shopping evolution

On Saturday 20 June, the City of Melbourne’s Pedestrian Counting System recorded 2,753 people at its Bourke Street Mall North sensor between 2pm and 3pm.

This figure represented a 24 per cent increase on the four-week average, and was within 150 people of the 52-week average of 2,866.

Brian Walker, founder and managing director of retail consultancy firm Retail Doctor Group, explains the shopping experience in terms of emotional appeal.

“We generally like the physical and social nature of our shopping experiences – hanging out at the mall, being part of a community, or perhaps a tribe. We also know that it is our limbic brain, the processor of our human emotion, that drives our buying decisions, at a ratio of 6:1, on average, over the functional, logical, rational context.

“We generally like the physical and social nature of our shopping experiences – hanging out at the mall, being part of a community, or perhaps a tribe... It is our limbic brain, the processor of our human emotion, that drives our buying decisions”

Brian Walker, Retail Doctor Group

“Shopping in the physical sense is our best shot at triggering the human emotion hands down. Online is quite the opposite.”

Walker also notes that human beings are “creatures of habit”, returning to the products and brands they already know and love.

He predicts that the future of retail will “show an acceleration of our understanding of online production, transaction and usage, and this will increase naturally as a consequence – but it can’t and won’t replace the physical shopping experience, especially done well.”

Bird describes the phenomenon as “a pendulum”, pointing to the impact of previous pandemics on interactions: “The pandemic of 1919-1920 had a similar effect upon behaviours at that time in terms of needing to social distance, and all those kinds of things. But pretty obviously, by some way into the ‘20s, those behaviours had swung back to ‘normal’ again," he explains.

“Having said that, if you look at the SARS epidemic, that really was the birth of digital commerce in lots of ways in China… That was an inflexion point where business responded, and that created a permanent change in the way people shopped in China."

Bird says physical retail will maintain low- or no-touch features, such as click-and-collect and virtual try-ons. However, he emphasises that retailers must employ creative strategies to keep consumers engaged.

“For the last few years, we’ve all heard that experience is going to be the saviour of physical retail – it was all about a ‘hands-on’ experience. But in a post-COVID world, the physicality of retail will be very different because customers will want to keep their distance and simply not touch as much. 

“Certainly that concern about hygiene and wanting to be safe in a physical environment, will stay.”

“Here on home soil, we can expect to see a renewed interest in products grown and made locally as nationalism around the world increases... People will want to buy Australian products from Aussie businesses”

Craig Flanders, Spinach Agency

To overcome customer apprehension, Van Belleghem advises, “Many people are afraid to go back to a more normal life, so facilitate this process as much as you can. Over-communicate what you do.

“Whereas many companies will dial back their communications, I would strongly recommend communicating more. If you do, you shouldn’t have any trouble out-communicating your competitors.

“By telling people what you are doing to make your company a safe haven, you are helping them to come to terms with the situation while lowering the threshold [for them to purchase with you].”

Hill advises retailers to do “due diligence”, taking into account all government safety regulations to protect staff and customers, before asking key questions: “[Retailers must ensure] they’ve thought through the entire consumer journey and how they’re walking in, when they’re walking in, how many are coming in.

"How many staff are going to be there? How is social distancing going to be handled? How is the PPE [personal protective equipment] going to be implemented in a way that’s still welcoming and not off-putting?”

She emphasises that the answers to these questions are highly dependent on the location of the store and its customer profile.

Consumer behaviour

Finally, the pandemic has brought to the fore key trends in consumer behaviour which influence purchasing patterns and attitudes to shopping – part of what Bird defined as the ‘heart’ category.

A recent report series by McKinsey & Company, which followed 12 Australian families throughout the COVID-19 lockdown, noted several insights:

• ‘Socially conscious’ values – The Australian culture of mateship and unity was strengthened during the pandemic. Bird identified this as an increase in orientation toward local businesses – consumers’ desire to support their local community through local retailers.

“Of course we will see the Amazons, Walmarts and large retailers strengthened during these pandemic times. But I think at the other end of the spectrum too, we will see really interesting small retailers that will purely focus on the local community,” he predicts.

Craig Flanders, CEO advertising agency Spinach, whose clients include Liquorland, Baby Bunting, and The Reject Shop, says, “Here on home soil, we can expect to see a renewed interest in products grown and made locally as nationalism around the world increases."

"This comes off the back of the loss of security and safety, driven by being too reliant on just-in-time supply chains from the global village," he explains. "People will want to buy Australian products from Aussie businesses.

"For brands with an Aussie origin story to tell, this is the time to capitalise on it.”

Manning also advises jewellers to “support local” in their supply chain: “We all, as retailers, ask our customers to buy local and yet so often the materials that go into jewellery manufacture and retail in Australia are from overseas. By supporting local mining and suppliers you can lower price fluctuation and supply risks in difficult times.”

• Developing healthy habits – Self-care, positivity, and mental health became key priorities for Australians.
These elements represent marketing opportunities for jewellers, as jewellery is so intrinsically associated with positive memories and experiences. Care for the broader community, the environment, and reflecting positive attitudes can all be central to a retailer’s messaging.

“In marketing in the past 10 years, the buzzword was ‘authenticity’. Some brands found that by adding, ‘founded in 1889’ [to the logo], suddenly you were authentic. I think we are going to see a flip from a focus on authenticity to a focus on responsibility,” Van Belleghem predicts.

“Not in a fluffy way, where you make a PowerPoint presentation and think that you’ve saved the world, but actually looking at society and thinking how you can add value.”

Van Belleghem advises businesses to “involve your customers and your employees” in defining socially-positive goals, and “don’t be shy about it: tell the world about your efforts, show the world you are proud while maintaining a humble tone of voice.”

•  ‘Deliberate’ shopping choices – COVID-19 restrictions broke many pre-existing habits, giving consumers time to re-evaluate how they spend their time and money away from status symbols.

“Purchases of smaller items were being ‘batched’ together to get one more-important item that [the consumer] felt aligns with their morals, their worldview, that has a story that they felt could connect to them, and that had more value”

Elle Hill, Hill & Co.

Hill has observed a continuation of the consumer trend toward sustainability, accountability, and narrative-driven sales.

“What I’ve been hearing from retail store owners is that purchases of smaller items were being ‘batched’ together to get one more-important item that they felt aligns with their morals, their worldview, that has a story that they felt could connect to them, and that had more value such that it would endure,” she says.

She predicts that sales of ‘heirloom’ pieces will increase explaining, “That heirloom may be $99 for 1 person, it might be $599 for another and $1000 for another... [Consumers want] a sense of permanence in a time when a lot of things don’t seem as permanent as they did.”

Among the most financially disadvantaged by the pandemic were Millennials and Gen Z – two cohorts which together represent 40 per cent of the Australian population, and who are defined by a desire for meaningful products and affordability.

With a sound financial plan, safety strategy, e-commerce offering, and a marketing message and product assortment that reflect consumers’ new values, Australian jewellery retailers who have overcome the challenges of the past six months are well-placed to meet the demands of consumers and thrive in the ‘next normal’.

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Part II: What have Australian and New Zealand jewellers been doing during the COVID-19 pandemic lockdown? Click to read more »