Risk of Retail Collapse Up By 3%

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 yet another difficult year for the retail sector with the recent dismissal of Myer’s two most senior executives; and several high-profile administrations including OrotonGroup, Marcs, David Lawrence, Aussie Farmers Direct and Pumpkin Patch (the latter purchased and relaunched by the Catch Group).

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

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,” said Mr van de Velde.

“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.

“The highly-publicised supermarket price war, particularly amongst Woolworths, Coles and ALDI, is likely to continue in the year ahead with speculation that discount supermarket operators Kaufland and Lidl will enter the market placing even greater pressure on independent grocers.

“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 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,” said Mr van der Velde.

“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.

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.

The report identifies and analyses the sectors and geographical location of businesses facing the risk of financial failure during the next 12 months.

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