This is episode number twenty-seven in our series for 2020 and today’s date is Friday, August 7.
First I talk to Lyndall Spooner, the founder, and director of the consultancy and advisory firm Fifth Dimension. She’ll be talking about how business leaders now need to adopt a wartime mindset.
And then I’ll be talking to IFM Investors chief economist Alex Joiner about the government’s response to the pandemic-induced recession.
But now, let’s talk to Lyndall Spooner.
The virus is the summer house guest from hell. Any remaining hope that the coronavirus that’s pushed the U.S., Europe, and much of Asia into historic economic downturns would take a holiday was all but crushed this week.
The virus continues to rampage through parts of the U.S. and engulf nations across the developing world, particularly India, Brazil and South Africa. It’s made a comeback in Japan as well as areas of Europe and China. At its current pace of about 250,000 or so new cases a day, there could be well more than 50 million infections worldwide by the end of 2020.
As for fatalities from the pandemic, “we’ll go well over a million,” Eric Topol, director of the Scripps Research Translational Institute in California, estimated in mid-June. The time until the release of a safe and effective vaccine will be very challenging, with countries like the U.S. and Brazil potentially leading the way in severity, said Michael Osterholm, director of the Center for Infectious Disease Research and Policy at the University of Minnesota. The same type of surge in daily cases that took place in the U.S. around the Memorial Day holiday could be repeated around Labor Day when schools reopen, he said.
Domestic building sites will be limited to five people in Victoria under the new six-week restrictions. Almost all retailing in Melbourne will be closed under restrictions announced by the state government. This will see a quarter of a million more Victorians stood down or sent home as thousands more shops, offices, and factories close their doors this week under stage four COVID-19 restrictions including a night-time curfew.
Most national retailers will not suffer a sufficient drop in sales to qualify for the $1500 a fortnight JobKeeper subsidy, so stood-down staff will have to apply for the $1,100 a fortnight JobSeeker payment or rely on accrued leave.
Victorian builders say they will take a hit to revenue totaling up to $456m a day from sweeping new restrictions on construction in the state, forcing some companies to close their doors entirely. Under tough restrictions announced on Monday that are designed to slow the spread of the state’s coronavirus outbreak, the number of workers on large building sites such as apartment complexes and office towers is to be reduced to a quarter of the normal number.
Construction employs 300,000 people – about 8.5% of the Victorian workforce – and represents 13% of the state’s economy. But some builders are concerned that under the new rules they will not be able to safely perform some labour-intensive tasks, such as pouring concrete slabs. There are also concerns that another rule that restricts people to working on one site for the six-week duration of the clampdown will make it impossible for tradespeople to carry on their businesses.
The exemptions from the closures announced on Monday include supermarkets, grocery, food and liquor shops; convenience stores; petrol stations; pharmacies; post offices; hardware, building and garden supplies shops retailing for trade; maternity supplies; motor vehicle parts for emergency repairs only.
Retailers will also be able to work onsite for the purposes of fulfilling online orders. Personal care services including hairdressers will be closed, as will car washes and photographic film processors. Locksmiths, laundries and dry cleaners are exempt from the closures. Vast parts of manufacturing and industry will also close although mining and farming will be allowed to continue work, especially agriculture and aquaculture food suppliers.
The Victorian Cabinet has considered leaving abattoirs open to secure supplies of fresh meat but Daniel Andrews has publicly questioned whether butchers will be allowed to operate. Abattoirs in Victoria have proved to be COVID-19 hot spots. Manufacturers not involved in medical products, including masks and protective clothing as well as medicines and “paper products” — toilet paper – for household use face closure. Hardware, building, and garden stores will be open to tradespeople only, with the public limited to contactless ‘click and collect’ pick-up only.
Industry groups fear the latest restrictions will be the final nail in the coffin for many small businesses. Despite the government announcing a $5000 support payment for affected businesses, the Council of Small Business chief executive Peter Strong said there would be a high number that would not survive.
Wesfarmers will close its Target and Kmart stores in the Melbourne metropolitan region and only allow trade customers at its Bunnings stores following the imposition of stage four restrictions in Victoria. All of the group’s retail businesses will be able to continue online operations however its bricks and mortar stores will be forced to shut to the general public.
Officeworks will be open only to service business customers. Bunnings stores will be able to serve trade customers but not retail customers, who will have to rely on home delivery or ‘contactless’ click and collect, while Officeworks stores can serve business customers but will be closed for in-store retail customers. The restrictions mean a large proportion of its approximately 30,000 employees in Victoria will be forced to stand down. In the Melbourne metropolitan area, the company has 53 Bunnings stores. 39 Kmart stores, 34 Target stores, and 42 Officeworks stores. Those stores provide 17% of the group’s total retail sales.
Victoria has manufactured a state of confusion. The Victorian government’s decision to allow greyhound and horse racing to continue during Melbourne’s imminent lockdown — as tens of thousands of businesses close their doors — has sparked anger and confusion around the opaque selection process for ‘essential’ businesses. Corporate giants like JB Hi-Fi, Officeworks, Harvey Norman, Myer, and Kmart are entering an enforced six-week hibernation after previously (successfully) arguing they were essential services. They are now facing an enforced six-week hibernation, along with other furniture and homewares, stationery, electrical and electronics, motor vehicle and motor parts, recreational goods, department stores, and clothing and footwear retailers.
Victorians who still have a job but have run out of sick leave will be given $1500 pandemic disaster payments to stay home for two weeks if they are at risk of having contracted the coronavirus. The payments will be provided by the federal government to augment a state government scheme already in place, and are designed to stop the virus spreading even further.
The federal government also confirmed it would make changes to the new JobKeeper wage subsidy, which begins in late September after the Victorian government shut down most of the state’s economy on Monday. Prime Minister Scott Morrison did not rule out reintroducing the JobKeeper wage subsidy for the childcare sector in Victoria or coming up with some other arrangement. The sector, nationwide, lost its eligibility last month before the Victorian catastrophe put the handbrake on the economic recovery.
Real estate agents are bracing for a severe cash flow crunch over the next six weeks as sales are shut down as part of the level four restrictions imposed in the greater Melbourne area. Starting midnight on Wednesday, real estate activity including on-site auctions and private open homes will be banned except for settlements that are already underway. Online auctions and inspections are allowed. Those who are scheduled to move homes are also allowed to proceed. Real Estate Institute of Victoria president Leah Calnan said the lack of cash flow coming through the next six weeks would put a strain on the industry.
Keeping the official cash rate on hold at 0.25% and maintaining its 3-year bond yield target of 0.25%, the Reserve Bank of Australia said unemployment will hit 10% because of Victoria with a more subdued rebound keeping the jobless at 7% for a couple of years.
More than 70,000 jobs could be lost because of the Victorian government’s stage four lockdown, wiping out recent job gains, according to a new analysis. Using data on how stage four affected New Zealand’s economy, KPMG predicted the new restrictions will hit service-sector jobs hardest and see the loss of 41,000 jobs gained in the sector in recent months. The production sector, which includes manufacturing, utilities, and construction, could see a 5% drop in employment or the loss of about 32,000 jobs.
Melbourne house prices dropped 1.4% in July, accelerating to an annualised rate of 16.8%, while Sydney lost 1%, as the surge in COVID-19 cases reignited fear of a longer and deeper recession that could result in widespread forced-selling. The CoreLogic July Index showed house price falls in Melbourne have quickened since May when they dropped 1.1% By June, they were down 1.3%.
ANZ Australian Job Ads rose 16.7% in July following the 41.4% increase in June. Job Ads are still down 30% since February and down 34% for the year. The pace of gains slowed, particularly in the second half of the month. The second wave of COVID-19 cases and return to Stage 3 restrictions in Melbourne and the Mitchell Shire have undoubtedly weighed on the recovery in labour demand so far. SEEK has noted a divergence between Victoria and most other states and territories in recent SEEK job ads.
Australian retail turnover rose 2.7% in June 2020, seasonally adjusted, according to the Australian Bureau of Statistics (ABS) Retail Trade figures. Ben James, Director of Quarterly Economy Wide Surveys, said this followed a rise of 16.9% in May 2020. Even before it’s second lockdown, Victorian retail was suffering to a greater extent than its peers in other states. Spending was down 6.2% in the June quarter in Victoria, compared with a 2.4% decline in New South Wales and a 0.5% decline in Queensland. The gap between Victoria and other states will widen considerably over the second half of this year, with retail activity highly restricted until at least September.
There have been clear winners and losers among different retail segments. Spending on food, such as from supermarkets or butchers, has held steady in recent months. The same is true for department stores. Meanwhile, spending on household goods has surged 16.5% in the June quarter. The impact of COVID-19 has fallen largely on the shoulders of clothing & footwear retailers (down 22.5% in the quarter) and cafes & restaurants (down 28.6%).
Australia’s wine exports dropped by 4.3% in the June quarter after COVID-19 restrictions around the globe caused consumption at restaurants and bars to shrink, and supply chains were disrupted. Wine Australia, the national body which oversees the industry, said on Tuesday that exports in the June quarter fell to $716 million from $748 million a year ago. This followed an even bigger fall of 6.6% to $522 million in the March quarter.
Gaming giant Tabcorp will tumble to a full-year loss after wiping up to $1.1bn off the value of its wagering assets, blaming the COVID-19 pandemic and the “direct impact” of the government’s attempts to control it. The writedown comes just over a week after the company’s long-serving chief executive David Attenborough and chairman Paula Dwyer announced their impending exits, and Tabcorp completed the tortuous integration of UBET, which is a wagering platform it acquired from Tatts.
Tabcorp said it already expects its full-year net profit before significant items to slump more than 32% to at least $267m. Including the writedown, this could mean Tabcorp will dive more than $800m into the red. The company, which stood down 700 staff early in the pandemic, has already lined up for the federal government’s wage subsidy, JobKeeper after its revenue slumped 50% in April.
Virgin Australia will sack 3000 employees, or about a third of its workforce, discontinue its budget Tigerair Australia brand and offload its long-haul international jets as part of a re-launch under its new owner Bain Capital. Australia’s number two airline, which went into voluntary administration in April owing $6.8 billion, released its relaunch plan on Wednesday morning. The moves were designed to make it a “stronger, more profitable and competitive” carrier, it said in a statement. Bain and Virgin have also left the door open to restarting Tigerair after the COVID-19 pandemic.
Regis Healthcare was hit by a ransomware attack over the weekend when an unidentified party published sensitive documents relating to an Adelaide facility, prompting the federal government’s Australian Cyber Security Centre to warn of an increasing threat to aged care and hospital facilities.
Documents apparently detailing details of individual residents’ care and accommodation agreements, employee appraisals, and passwords relating to Regis’ eastern-suburbs Adelaide home in Burnside were posted to a public website. The aged care provider said in a statement it had been targeted in an attack, but that the attack did not affect the delivery of resident care or services and was not materially affecting Regis Healthcare’s day-to-day operations.
Regis operates aged care homes in Victoria, but has not suffered infections among residents, nor has it been linked to infections in the COVID-19 pandemic to the same degree as listed rival Estia Health or unlisted rival Bupa. However, an attack on its IT system represents a threat as it manages its homes and tries to keep them safe. The federal Australian government’s cybersecurity centre issued a “critical” warning on Sunday that ransomware known as Maze is threatening aged care facilities across the country.”The ‘Maze’ ransomware is designed to lock or encrypt an organisation’s valuable information so that it can no longer be used and has been observed being used alongside other tools that steal important business information,” the centre said in an update on Sunday.
Underwear and clothing giant Bonds are rushing an extra 4 million face masks into Australia to meet extraordinary demand as tough new restrictions come into place in Victoria and the rest of Australia on high alert over the coronavirus.
The 105-year-old brand, owned by US giant Hanes after a $1.1 billion takeover of Pacific Brands in 2016, has shipments totaling 4 million masks ready to come into Australia in August and September by air freight and by ship. The chief executive of Hanes in Australia, David Bortolussi, said the group had been moving quickly to try to keep up with demand.
The company gained approval from Australia’s Therapeutic Goods Administration in June for its reusable masks. There has been a strong response from customers attracted by the trusted Bonds name and its long history in Australia. The Chesty Bond image has been famous and is considered by marketing experts as one of the icons of Australian advertising. Mr. Bortolussi said the Australian arm had tapped into the expertise of the global Hanes group to develop a new range of masks. Hanes has already supplied 450 million masks to the United States government. The Victorian Government has made mask-wearing compulsory outdoors except for short periods of exercise, while people in other states are increasingly choosing to wear masks outdoors.
And that’s it for this week. And next week, I’ll be talking to Dean Foley, the founder of Australia’s first Indigenous-focused startup accelerator Barayamal. And I’ll be talking to economist Saul Eslake about the state of the Australian economy and what’s needed to get us up and running again.
In the meantime, you can find me on Twitter at talkingbizz, on Facebook, and on LinkedIn. And if you want, leave a comment. Wishing you all a safe and healthy week and looking forward to bringing you Talking Business next week.