Is This the Swan Song of Australia’s Traditional Retailers?

Posted by David Kemp on Nov 28, 2018 12:33:22 PM

Is this the swan song of Australia’s traditional retailers?

The retail industry in Australia has been in a state of flux for years. With the advent and subsequent popularity of online shopping and consumer spending habits constantly evolving, it’s now harder than ever for ‘bricks and mortar’ retail business owners to remain competitive let alone solvent. And it’s getting worse.

As of the 27th November 2018, indicators suggested that the 18/19 financial year has seen Australian retailers go bust in record numbers. The latest analysis from illion reveal the sector’s failure rate hit record levels during the September quarter of 2018.

At 0.82 per cent, the failure rate for retailers is currently the highest on record. Which is 1.5 times the overall failure rate for all Australian businesses (0.55 per cent).

Retail Failures vs All Sectors, 2012-2018

Retail Failures vs All Sectors, 2012 - 2018

Late payments: the unfortunate industry leader

In early September 2018, Australian Retail was the sector identified as the worst for late payments with an average of 14.5 days behind. At the same time the sector showed the smallest annual decline among all sectors for previous financial year.

Retailers remain in a fragile position due to fierce competition from domestic and international online retailers, which is causing retailers to heavily discount in order to remain appealing. 

illion CEO Simon Bligh illustrates how the latest analysis shows how and why retailers are struggling as they face challenges on multiple fronts within and outside of the sector itself. “The retail sector is battling weak consumer confidence, falling house prices and competition from online and overseas competitors. One of these alone would hurt growth, but all three is a tough combination, and the results are clear in our latest analysis,” Mr Bligh said.

An optimistic silver lining

Despite the record high failure rate, there are some positives for the embattled sector. “While the failure rate has increased sharply, many retailers will stay afloat during this period and some will see this as an opportunity to expand their business and service offerings. The peak shopping season is here and we’re finally seeing some signs of a pickup in wage growth, which should boost consumer confidence. So it’s not a hopeless picture for bricks and mortar outlets that can stick it out during a downturn,” Mr Bligh added.

Nationwide, failures increased across all regions during the September quarter. The Northern Territory had the highest business failure rate of 0.79 per cent, which isn’t surprising given the territory recorded the highest annual rise of all states and territories (21.8 per cent).

Tasmania produced the lowest business failure rate at 0.34 per cent, well below the national average and a sign of the state’s robust economic performance over the past two years; the benefit of population growth and a buoyant housing market.

As the retail sector continues to experience challenges from the wider market, as well as continued disruption from digital competitors, is this the swan song for traditional retailers?

Take advantage of our free insight

Read up on the Australian market’s Late Payments by downloading your copy of June 1st Quarter Analysis for 2018. illion CEO Simon Bligh discusses why we’re seeing late payments on a “…long-term downward trajectory in FY2018”. 

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Topics: Retail, Business, Australian Economy