Major retail businesses on the brink of collapse in Australia

The series of Commercial Risk Outlooks analyse the industries and regions within Australia where businesses are most at risk of defaulting within the next 12 months, to develop a multidimensional view of the drivers behind commercial risk for Australian business owners and consumers.

A little background 

The SV Partners August 2017 Commercial Outlook Report shows 1,591 retail businesses, or 3.2 per cent of the industry, are at risk of failure or imminent collapse, including one business with turnover of more than $1 billion annually and 21 major retailers with turnovers of over $50 million annually.

It reflects a broader trend nationally, as the proportion of businesses facing collapse has risen from 12,633 to 13,266 – a 5 per cent increase on the last report.

This is a 12.6 per cent increase on the previous report when 1,413 retailers fell into this category.

The findings come during a difficult year for the retail sector with the exit of Topshop from the Australian market; several high profile administrations including Marcs and David Lawrence, Herringbone and Rhodes & Beckett; and the imminent arrival of Amazon in Australia.

Charisse Gray, Business Propel’s senior writer spoke with Darren Vardy

Q. What challenges should retailers ready themselves for in the future?
A. High rents in capital cities, high labour costs and increased competition from online retailers has put a strain on many retailers.

The entry of Amazon into the Australian market, will present additional challenges to domestic retailers over the next 12 months.

And weak wages growth and high property prices also put pressure on consumer discretionary spending that retailers rely heavily on.

Q. What is a major factor that brings these businesses down?
A. We have seen that retailers that don’t have rigorous financial strategies in place are struggling to stay afloat. Earlier this year we were appointed as administrators of the Australian luxury handbag chains Victoria Station and Kate Hill, as well as iconic Gold Coast retailer KF&S, trading as Ugg Since 1974.

The challenges facing the retail sector are not unique, many industries are having to change their businesses to compete against major global players and overcome domestic pressures.

Q. What advice would you give business?
A. 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.

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.

Q. Is it just retail? What or are other businesses are most at risk?
A. Businesses operating within the accommodation and food services, and construction industries are also among the industries with the highest number of businesses most at risk of default within the next 12 months.

The report’s findings show a total of 13,266 businesses or 2.6 per cent of incorporated Australian businesses across all industries are at high risk of financial failure over the next 12 months.

Q. This is bleak. How accurate are these findings?
A. 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 immediate financial failure during the next 12 months.

The SV Partners Commercial Risk Outlook Report analyses the overall economic conditions of Australian business activity based on the most comprehensive and latest commercial bureau data over the past 12 month period including trade payment experiences and data from over 50 variables.

The Report predicts the likelihood of adverse financial events including external administrations, petitions to wind up, mercantile enquiries, defaults, bankruptcies, court writs, default judgements.

The Report categorises businesses into eight risk bands ranging from minimal to severe risk. High risk business behaviours include late payments on loans and debts, cash flow problems and unfavourable trade payment behaviours. Businesses categorised within the highest risk categories are extremely likely to undergo a serious adverse financial event within the next 12 months of trading.

 

 

Data is compiled from millions of commercially sourced records and data assets from sources including ASIC, the Australian Bureau of Statistics, Business Directories, Consumer/Commercial Credit Bureau, the Australian Post Office, Australian Business Register, Telephone Directories and Business Research.

SV Partners https://svpartners.com.au/

Article originally published by Business Propel – http://businesspropel.com.au/dashboard/financials/articles/major-retail-businesses-on-the-brink-of-collapse-in-australia

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