‘We’re Not Out of the Woods Yet’: More Retailers Expected to Fall this Year

It’s no surprise to anyone that retail stores are doing it tough in Australia right now. This month we’ve seen high profile fashion label Esprit announce it is closing up shop in Australia, and Toys”R”Us and General Pants-owned Metalicus both going into administration – all of which gives some insight into the state of the retail market.

Sydney based Jirsch Sutherland Partner Amanda Young says although retail insolvencies are nothing new, high profile closures mean it’s a topic that’s currently on people’s radars.

Amanda Young
Amanda Young

“Retail administration has recently hit the news due to a number of high profile closures,” she says.

“But in reality there are a variety of issues that can affect the longevity of retail businesses. The retail industry has been struggling for some time with the rise of digital and online shopping and the ability to ‘shop on your phone’.

“There’s also been pressure to adopt flexible opening hours because of consumer demand, which often overstretches staff resources and finances. Consumers are also choosing large retailers over independent shops for convenience. Add to that huge rental and business rate costs and you can see why parts of the retail sector are in trouble.”

As far as trends go, Jirsch Sutherland is seeing an elevated level of retail administrations in Australia at the moment, which looks set to continue into 2018 and beyond.

“Research shows that May is traditionally one of the worst months for external administrations. May was the worst month for this sector in both 2016 and 2017, and 2018 already has a number of casualties. The number of retail trade companies entering external administration in January and February 2018 was 20 per cent higher than that of the previous year,” explains Amanda.

“Our experience is that traditional bricks and mortar operations continue to face major challenges – as evidenced by Metalicus and Esprit. They’re being slammed by high rents, staff costs and the growing competition from online stores, and that’s exacerbated by other key contributors such as obsolete stock issues and poor record keeping.”

“This isn’t an issue that I think will go away unfortunately,” Amanda adds. “We are seeing increased levels of online shopping and more pressure on retailers to discount prices continually to stay competitive and encourage reluctant consumers to spend.

“Supermarkets have also made it tough for independent stores to survive as consumers opt for the convenience of one-stop shopping, rather than supporting small, local businesses in their community.

“Some businesses are opening for longer hours to provide more flexibility for consumers. However, this can often overstretch finances and cause them to collapse into insolvency. With these factors in mind the potential for more casualties is significant.”

Green shoots

According to a recent report by Savills (National Retail Report, February 2018) although the retail sector is still weak in some states, especially those driven by resources and mining such as WA, there are ‘green shoots’.

“In WA there have been improvements in the state’s economy but it is segmented,” the report says.

“Retail sales growth is still weak in the wake of low wages growth. There are green shoots emerging, with the labour market showing signs of improvement, particularly in transport and logistics job advertisements, suggesting that e-commerce, in addition to lower levels of disposable income is still placing some pressure on household spending in the short-term.”

Savills Retail Investment Services Director Chris Irelands adds: “Billions of dollars are being invested in redeveloping Perth’s shopping centres, reflecting a high level of long-term confidence in the state’s retail sector.”

Elsewhere in Australia the retail sector in other states is showing improvement, especially South Australia.

“Record infrastructure spending is buoying job growth, helping to support investment demand in a market that is traditionally tightly held,” Savills Managing Director South Australia Rino Carpinelli says.

“While this has yet to significantly change consumer spending, employment is growing and overall confidence is improving. Retail trade numbers are up, and some sectors such as household goods and clothing sales are out-performing the national average,” the report adds.

Overall it seems that retail in states that aren’t dependent on the resources sector is on the up.

“On a state basis, retail trade growth in New South Wales, Victoria, South Australia, Tasmania and the Australian Capital Territory is outperforming the national growth rate, while those states previously exposed to the downturn in the resources and mining sector, Queensland, Western Australia, and to some extent the Northern Territory are underperforming,” the report says.

There are green shoots in Western Australia and Queensland, especially on the labour front, with improvements in commodity prices and record export growth driving a positive outlook for 2018 and beyond.

“Population growth in Sydney and Melbourne will continue to fuel both investment demand and retail trade performance through 2018. Employment has been rising in all states but wage growth remains low. This may continue for some time, raising some concerns for discretionary retail centre owners, at least in the short-term.”

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