Almost 1,500 retail businesses are at risk of imminent collapse, including more than 260 retailers with turnovers of more than $10 million annually, according to research by SV Partners.
This represents a 3 per cent increase in at-risk retailers in the last 12 months.
The findings come off the back of another difficult year for the retail sector, with several high-profile brands entering administration including Oroton, David Lawrence and Marcs.
SV Partners managing director Terry van der Velde says 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 with the past year seeing the continued onslaught of competition from international retailers entering the sector, with nearly 40 of the top 250 global retailers now operating here,” he says.
“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.
“While the initial launch of Amazon didn’t have the doomsday effect that some commentators were predicting, we expect the influence of the world’s largest e-retailer to increase as its offering becomes more established, adding more pressure to the industry.”
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.
“Increased competition from online retailers has continued to put strain on many retailers and highlighted local retailers’ continued underinvestment in their online offerings,” van der Velde says.
“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.”
Van der Velde acknowledges 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,” he says.
“We urge all business owners need 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.”
According to the Australian Securities and Investment Commission (ASIC), the retail industry recorded 118 external administrations as of December 2017. This represents a drop of 4.8 per cent since December 2016 and is the fourth highest industry figure behind other (business and personal) services, which had 686; construction with 303; and accommodation and food services with 217.
By Ruth Cooper
