Despite the prevailing negative news about the economy, IBISWorld believes there are a few key tactics that smart companies in some of the worst-hit industries can employ to accelerate their recovery from the current crisis.
PROPERTY
While it garners much less media attention, the commercial property sector - not residential - is the most significant casualty of the global recession, with IBISWorld predicting the market won't return to either the level of activity or prices of 2006/07 until 2011 and beyond.
Commercial delinquency rates will be high and yields will soften. In addition, sales of office towers, shopping centres and industrial properties are plummeting - with numerous companies in Melbourne and Sydney vacating unused floor space to sublet offices.
Buyers are drying up due to the seizing up of the credit and debt markets, and vendors remain reluctant to reduce the price of properties.
On the industrial property front, many major players - including Stockland, GPT, ING Industrial Fund and Dexus Property Group - have downgraded profit forecasts or severely devalued their industrial portfolios.
A significant commercial property bailout from the Rudd Government is likely, however, any package developed will likely be heavily criticised, since many believe the economic crisis was largely caused by the misdirection of resources into property investment.
Some fear support for the commercial property sector will inflate rents, limit profits and restrict the business market value of many small organisations.
Opportunities:
- Some developers may be able to secure loans for large-scale projects with an expected $4 billion injected in to the market via the Australian Business Investment Partnership.
- Establishing a liquidity fund sends a strong signal that the major banks planto support well-run property companies.
- Continually refresh finance facilities.
RETAIL
This will be the year Australians become conscious spenders, and seriously curtail discretionary spending. It's going to be a bumpy ride. Consumer sentiment will continue to fall and further interest rate cuts will have little impact as job security becomes the number one concern for most Australians.
In the past, online shopping has been on the backburner for many Australian retailers, however in the current challenging retail climate, many more operators will, and must, provide an online shopping platform in order to survive - with the costs of setting up and running a website a much more inexpensive option compared with establishing a shopfront.
IBISWorld also predicts that as retail sales slump and household wealth declines, budget-conscious buyers will be looking online - here and overseas - for discounted and alternative products.
Opportunities:
- Cutting costs - whether by trading online, internalising savings throughout the supply chain, cutting out the middle man, going straight to the manufacturer or bulk buying through a co-operative.
- While deep discounting is an effective strategy to eliminate surplus inventory, it can hurt the brand in the long run, so for companies that can avoid it, other strategies may prove more fruitful.
- Concentrating efforts on improving sales, after-sales and customer support is critical since buyers are thin on the ground.
- Retailers who use the current situation to win market share in a mature and saturated market will enjoy long-term benefits when the economy turns the corner, and the acquisition is likely to be a major trend in the industry during 2009-10.
FINANCE
One of the earliest to field a punch from the US credit crunch and subsequent global economic slowdown - bankers, brokers, financial planners and fund managers - are all suffering falling revenues, profits, and employment, with the investment banking sector the hardest hit.
This financial year, IBISWorld is forecasting Australia's investment banking sector to lose more than 27% of revenue, experience a 12% drop in employment and nearly halve its profits, with fund managers and investment advisers (other than superannuation funds) tipped to experience real revenue declines of 14% and 18% respectively.
While it has become increasingly apparent that many operators in the finance sector simply won't survive the current crisis, IBISWorld believes successful organisations will take key actions now to reduce their risk and strengthen their position ahead of the market's eventual recovery.
Opportunities:
- Reigning in costs is paramount, and many forward-thinking firms will sell less profitable operations, cull staff and reduce or eliminate bonuses.
- Consolidation through mergers and takeovers may reduce costs and provide sufficient scale to ride out the downturn - or recession.
- By embracing the forthcoming tougher regulatory environment, companies may slowly regain investor confidence.
- It is a buyer's market as the finance sector sells off assets. Companies that still have capital are in an ideal position to pick up a bargain that could expand their market share and potentially return major dividends in the long run.
