Research by various organisations indicates significant financial stress for many Australian households ahead of the expiry of the payment holidays and government support packages.

Governments probably have no option but to continue support packages, albeit possibly at lower amounts and more targeted. But the preparedness and capacity of banks and other organisations to extend payment holidays or discounts is more problematic.

It is difficult to conceive how discretionary retail spending will provide any comfort to struggling retailers in the 2021 financial year. Retailers impacted directly by restricted trading due to the coronavirus face a tough challenge to restore sales and profitability.

Retailers that were struggling before the pandemic to generate sales and meet debt obligations and operating costs are in peril with banks and financiers set to stress test businesses to limit their risk exposure to business failures.

While sales will be constrained by low consumer confidence and spending capacity, retailers face higher wages bills, increased inventory costs and potentially the reinstatement of full lease commitments.

There is industry speculation about some retailers appointing administrators to enable them to restructure and downsize their businesses, effectively using financial administration to exit leases.

Current protections for directors allowed by the federal government under insolvency laws are unlikely to continue indefinitely and could also be a trigger for more retailers appointing administrators.

Retail landlords have already been forced to reduce rents for some tenants and have encountered rent strikes by companies, including Premier Retail and Sussan Group.

Retail landlords have also been confronted with a significant number of store closures due to business failures as well as chains paring back their networks in a bid to cut costs and jettison underperforming locations.

Those landlords are now likely to be crucial to the survival of some retail chains as bankers and financiers interrogate retailers’ trading figures and business plans.

Retailers should all be working closely with their business partners, including suppliers, landlords, bankers and advisers, on revised business plans to steer them through what will inevitably be a challenging FY21.

Two major retailers that will be under the microscope in the months ahead are the department store chains Myer and David Jones. Both were struggling before the coronavirus pandemic, reducing their retail floorspace and staff numbers in a bid to establish a sustainable business model.

The struggles of David Jones and Myer mirror the financial and operational difficulties of department stores around the world and particularly in the comparable markets of the UK and the US.

In an indication of industry concerns about the two iconic retailers, QBE Insurance has withdrawn trade credit support for suppliers to Myer and David Jones.

Myer’s share price is a bargain basement 21¢ a share, valuing the company at just $177 million, while David Jones is proving to be an anchor for its South African owner, Woolworths Holdings.

David Jones is valued by Woolworths at around $1 billion, less than half its acquisition price in 2014, a valuation that is underpinned by property assets.

David Jones is now looking for buyers for its flagship Sydney properties, with an expected price tag of between $800 million and $1 billion.

David Jones kept stores open during the lockdown period and has recently negotiated a waiver on its debt from lenders while it progresses the property sale and further floorspace reductions equivalent to around 20 per cent of its store portfolio.

Myer, which closed stores during the lockdowns around the country, is understood to have been close to breaching debt covenants in the second half.

Myer has also continued to review its retail floorspace at the end of FY20 cut a further 90 head office positions.