Taking the Dive: Australian Retail Falls into Recession

Ally Feiam By Ally Feiam | 17 Jun 2019

Disruptions in the e-commerce industry, slow growth of the Australian economy and a rocky and uncertain future has started to worry the retail industry.

“GFC-level terrible,” said the NAB Group Chief Economist, Alan Oster, while commenting on the state of Australian retail during a recent NAB Economics podcast. In this broadcast, it’s clear that the sector was ‘clearly in recession.’

According to Phil Chapman, Director of Lease1, the ‘dire situation’ has actually escalated in the past few months compared to the past couple of years.

Some of the firms behind Australia’s once popular retail brands like Focus on Furniture are going into administration, alongside others who are seen closing its doors more frequently. Although worrying for those in the retail industry, it’s not a terrible surprise, considering the state of retail four years ago.

According to a survey by Macquarie Wealth Management, there was a ‘very steep contrast’ in the behaviour that retailers take on expanding floor space in brick and mortar stores.

“Retailers are far less bullish on their space requirements today than they were five years ago, when we first conducted this survey. Only around seven per cent of large retailers currently intended on increasing space on a one-year view. This compares to around 61 per cent back in 2014. In fact, 24 per cent expect to decrease space over the next 12 months,” explained the report.

So, what’s to be done? Only time will tell, according to Chapman. Since this crisis is on many retailers’ minds, there has been an ‘increasing sentiment’ that rent reductions need to follow. “Finally, someone is saying the R word about Retail Trade- recession. The other R’s are rent reductions,” said Chapman. Although this is the obvious route that will aid in retail bouncing back, finding the means to actually achieve these reductions won’t be easy, as “rent rises deeply rooted in the current leasing system’.

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