The lessons investors have learnt from Australia?s lockdowns - Sydney Morning Herald

Retailers have reset margins higher

Larger retailers have used the pandemic to accelerate store consolidation and regain the upper hand with landlords. Premier Retail which owns brands Peter Alexander and Smiggle have successfully reset rents by 2.5 per cent. As a result, margins have reset higher, and profitability has improved.

Significant increase in near-term investment, to de-risk growth in outer years

As bricks and mortar retailers closed their doors in March, e-commerce players boomed. Whether it was masks and mugs from Redbubble or a new desk and chair from Temple & Webster, comparable sales spiked as consumers spent online. Equity valuations have swollen, as revenue bases are multiple times the base pre-pandemic.

The question now turns to the sustainability of the boost. In recent months Redbubble, Adore Beauty and Breville are just some who have signalled a significant increase in near-term investment, to de-risk the growth in the outer years.

Diversification of supply chains

By the middle of May in 2020, much of retail had reopened and a counter meal was back on offer albeit with limited capacity. With a new appreciation for work from home, supply shortages began to emerge, as global supply chains had been disrupted or shut since early January with the onset of the pandemic. Bikes, manchester, gym gear and furniture were amongst some of the goods in short supply as demand spiked, and inventories were not rebuilt quick enough.

The trade wars of 2018 and 2019 were a warning shot for many Australian corporates, as to the need to have more diverse supply chains. The pandemic has forced diversification out of necessity, with delays still prevalent some 20 months on from the initial shutdown.

Opportunistic acquisitions at or near the lows, have been rewarded handsomely

Pherous was not alone, with Shane Fallscheer embarking on a similar deal in November of that year, buying 80 Lovisa fashion jewellery stores in Europe. At the time of the announcement Lovisa noted all their existing stores across France & the UK were temporarily closed.

Acceleration of long-term megatrends

Aviation industry has relied on fleet flexibility

As the aviation industry breathes a sigh of relief today, with the resumption of international travel, capacity will be in focus, as airlines attempt to match aircraft with demand from travellers. The challenging aviation environment in the past few years has called for fleet flexibility, with Alliance Aviation able to expand its fleet with cost-effective purchases, and meet the capacity needs of Qantas and Virgin.

Cost bases have been structurally reset

The tourism and travel industry has arguably suffered the most of any industry in Australia. With revenue down to a trickle, they have had to attack their cost bases with rigour, mostly out of necessity. As such when we see a full recovery in travel volumes, we should see structurally lower cost bases.

Other industries have found ways to operate more efficiently. The auto dealers have seen demand soar for new and used cars. At the same time, AP Eagers has reduced its head count by 1200 people. Despite supply disruptions, Australian new car volumes are on track for over one million vehicles.

Dividend policy changes a dime a dozen

Every crisis is different, every government response is different, but the resilience of corporate Australia was again on display, over a decade on from the tumult that the global financial crisis wrought on the local economy.

Nick Guidera is a Portfolio Manager at Eley Griffiths Group

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