Retailers at risk of collapse

Challenges on all fronts.

 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 new research. This represents a 3% increase in at-risk retailers in the last 12 months.

The findings from advisory firm SV Partners Commercial Risk Outlook Report – March 2018, comes off the back of another difficult year for retail.  

SV Partners managing director, 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 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.”

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, he said.

“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% in December 2016 to 4.8% in 2017 from 3.8% 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,” 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.”

He said while challenges facing the retail sector are not unique, many industries have 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. 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.”

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