Major retailers “on the brink”

fail, down, dollar, business, fall, decline, dropAlmost 1,600 retail businesses are at risk of imminent collapse, including 21 major retailers with turnovers of over $50 million annually, according to research by insolvency firm, SV Partners.

This represents 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.

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, including one business with turnover of more than $1 billion 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.

SV Partners Managing Director Terry van der Velde said retailers faced challenges on a number fronts.

“High rents in capital cities, high labour costs and increased competition from online retailers has put a strain on many retailers,” he said.

“Coupled with the entry of Amazon into the Australian market, the next 12 months present additional challenges to domestic retailers.

“Weak wages growth and high property prices also put pressure on the discretionary spending that retailers rely heavily on.

“We have seen throughout our practice – retailers that don’t have rigorous financial strategies in place are struggling to stay afloat.”

Earlier this year SV Partners 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,” said van der Velde.

“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.”

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.

SV’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.

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. 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.

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.

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