Terry Rawnsley, Principal & Partner at SGS Economics and Planning

COVID-19 represents the most significant global challenge since the Second World War. The restrictions which shut down large parts of the economy were unprecedented. COVID-19 will see Melbourne’s economy experience the biggest contraction in income since the early 1990s.

The recession of the early 1990s battered Melbourne’s economy more extensively than the rest of Australia. The manufacturing heartland (e.g. textiles, car manufacturing, consumer goods) of Melbourne contracted sharply. Many older inner cities factories closed and those newer factories in suburban Melbourne saw many job losses. This had had a range of flow on economic effects. The unemployment rate was over 11 per cent for three years (much worse than what is expected after COVID-19). There was heavy migration out Melbourne, the so-called ‘rust belt’ of the nation. There was fear and uncertainty about what the future held for Melbourne.

At the start of 2020 Melbourne was almost unrecognisable from the early 1990s. The City of Melbourne local government area was at the centre of the renaissance. Redevelopment of Southbank and Postcode 3000 helped bring in residents to revitalise the urban fabric of the centre. Southbank and Docklands provided the Central Business District with brand new spaces to accommodate the growing number of office workers.

New office workers and residents helped to underpin the boom in cafés, bars, restaurants, and retail services. All these jobs combined with an active arts and culture scene gave the City of Melbourne a buzz and vibe which could not have been imagined during the early 1990s. Much of the success was based around trying new things (e.g. small bars, outdoor cafes, high quality food at reasonable prices), all of which successfully brought in new customers.

COVID-19 has caused another recession, but just like the renaissance that followed the recession of the early 1990s, COVID-19 will require businesses to transform and adapt in this complex and uncertain new world.

Since before the pandemic, the office workers of Melbourne have been on a long journey of digital transformation. COVID-19 has merely sped up that process, without causing a fundamental shift in its trajectory. The automation and digital transformation of high-tech manufacturing will also continue post COVID-19.

The real challenge is for businesses dependent on daily face-to-face transactions. The real question is: what will face-to-face transactions look like post COVID-19? COVID-19 could become like the seasonal flu, with regular and widespread infections within the community. If that is the case, the shift in behaviours (e.g. working from home, internet shopping, less travel) seen in the last few months may continue. However, if COVID-19 becomes like SARS CoV (from the 2002-2004 epidemic), where clusters are small and occur infrequently, much of the fear seen over the past few months will reduce and behaviour will creep back to patterns that more closely resemble a pre-COVID-19 world.

Regardless of what the future might hold, COVID-19 has accelerated some existing trends. Working from home will be more common, people will be less likely to pay in cash, online shopping will increase, local purchasing will increase.

We also know that international students and tourists will be a rarer sight on the streets of Melbourne while the borders remain closed.

Businesses will have to adapt to the changing behaviours of their customers. A digital footprint to enable online transactions with customers is a must. Businesses for whom it makes sense to diversify their product offering will also benefit. It is not just selling a coffee that will keep a café in business, but selling the coffee beans, cups, other drinks and associated products. Customers will not be passing by every day, but may still want to support the business by purchasing online or in bulk.

Making it easy for customers to support the business is vital. To make this happen businesses need to understand their customers better:

• What are their preferences in terms of product and price point?
• How will they interact with your business?
• How important is social distancing to your specific business?

This will require businesses to try lots of different things, many of which will fail. But this shift to experimentation in business culture will be critical in helping businesses to understand their current and potential customers better. Of course, this was already happening every day before COVID-19, but in tough times, a new level of dedication to customer engagement is required.

Being able to make a good cup of coffee won’t mean you have all the skills and infrastructure required to build the digital footprint you need, or to conduct effective market research. All levels of government should aid small businesses by providing assistance in this space. For example, even providing cashless point of sale terminals could be a revolution for some small businesses previously dependent on cash transactions.

There is also a role for government to play in bringing local Melburnians and Regional Victorians into the city, to help replace lost revenue from international visitors. This will require some innovative thinking around events which can work in a social distancing environment.

We know that the residents of inner Melbourne have built up a massive amount of wealth in the past two decades of continuous economic growth. I have little doubt that they will want to spend that wealth when the city emerges from the worst of COVID-19.

Businesses will need to grab this opportunity by adapting to new customer preferences and different ways of doing business.

This opinion paper is part of the City of the Future event 2, exploring focus are 1: Current Business.

Problem statement: How might we enable existing industries and businesses to transform and stay viable?