1,500 retailers face ‘imminent collapse’

1,500 retailers face ‘imminent collapse’

16 March 2018

Almost 1,500 retail businesses in Australia are at risk of imminent collapse, including more than 260 retailers with turnovers of more than $10 million annually, reports retail industry news site PowerRetail.

Insolvency specialists SV Partners Commercial Risk Outlook Report—March 2018 reveals that 3 per cent of the retail industry is at risk of failure, including 18 businesses with a turnover of more than $50 million annually.

This represents a 3 per cent increase in at-risk retailers in the last 12 months.

The report draws upon millions of commercially-sourced records and data assets to create and analyse comprehensive risk profiles of more than half a million Australian incorporated businesses.

SV Partners MD Terry van der Velde said Australian retailers face challenges on a number of fronts, ranging from international and online competition, technology disruption, domestic pressures and changing consumer tastes.

“The retail market is one of the most highly competitive spaces in Australia,” he said.

“The past year has seen the continued onslaught of competition from international retailers entering the sector, with nearly 40 of the top 250 global retailers now operating here.

“In the face of global competition, businesses need to devise strategies to minimise their costs, manage their debt levels, and build strong and dependable cash flows,” Mr van der Velde said.

The SV Partners analysis comes as the AFR reports Chief Executive Peter Allen of Scentre Group, which owns and manages Westfield malls in Australia, says his company is taking a tough line with struggling retailers seeking rent relief.

“It’s pretty often that retailers want to try to take advantage of the situation to try to get cheaper rents,” Mr Allen said

“But in the end that does not provide a sustainable opportunity for them to retain space.

“We would typically over time replace those retailers with people that are prepared to pay the value of the space.”

Mr Allen’s comments came on the heels of franchisor Retail Food Group, which owns the Brumbies, Donut King, Gloria Jeans and Michel’s Patisseries chains, announcing it soon will shut as many as 200 stores.

Recent Australian Bureau of Statistics data showcases the rising contribution of online to total retail turnover, up from 3.8 per cent in December 2016 to 4.8 per cent in 2017 from 3.8 per cent in 2016.

“Increased competition from online retailers has continued to put strain on many retailers and highlighted local retailers’ continued underinvestment in their online offerings,” Mr van der Velde said.

“High rents in capital cities, high labour costs and the increasing number of consumers choosing to spend their discretionary income on experiences rather than new items have continued to be stress points for many retailers.

“The challenges facing the retail sector are not unique, with many industries having to change their businesses to compete against major global players and overcome domestic pressures.

“Retailers that don’t have rigorous financial strategies in place are struggling to stay afloat.

“We urge all business owners to take a critical look at their operations and ensure they have the capacity to handle short term budget pressures, consistent with long term capital and revenue strategies.”

The report’s findings show a total of 12,338 businesses or 2.4 per cent of incorporated Australian businesses across all industries are at high to severe risk of financial failure over the next 12 months.