Finance

Seven major Australian retailers at “extreme risk” of collapse: Report

Eloise Keating /

More than 1,200 Australian retail businesses are at risk of financial failure over the next 12 months, including seven major retailers with annual turnover of more than $100 million, according to a commercial risk assessment analysis produced by advisory firm SV Partners.

While SV Partners’s August 2016 Commercial Risk Outlook Report does not name the major retailers it says are on the brink of collapse, the group includes one large supermarket and grocery chain, two large computer retailers, one large clothing retailer and a large retailer of newspapers and books.

The Australian retail sector has already been hit hard in 2016, with well-known brands such as Dick Smith and Laura Ashley running into financial strife.

Other prominent retailers to appoint external administrators this year include clothing retailers Meredith & Moore and Man to Man, and furniture retailer Far Pavilions.

The SV Partners’ findings about the retail sector draws data from company financial records over a period of five years and bill payment histories for businesses over a two-year period.

Within the retail sector, the report found clothing retailers are at the highest risk of collapse, with 91 clothing retailers deemed to be at high risk of failure. The second most at risk sub-category is supermarkets and grocery stores, where 79 businesses are considered high risk.

The report also draws on data from the Australian Securities and Investments Commission, which recorded 903 Australian retailers entering into some form of external management between March 2015 and March 2016.

SV Partners managing director Terry van der Velde said in a statement financial failure is “almost certainly on the horizon” for a large number of retailers.

“The financial challenges these companies are facing are reflective of the difficulty that shop front retailers are competing with the online space which doesn’t have the same issues with labour costs, rising rents, and limited captive markets,” he said.

“Competition generated from the expansion of international stores to Australia in recent times, particularly in the clothing space, has also been a significant contributing factor for many retailers.

Van der Velde told SmartCompany retailers’ margins are becoming increasingly tight and as such, any fall in turnover from a reduction in consumer spending “will hurt retail businesses quite dramatically”.

“Big retailers are by no means protected from these factors, but they are usually more sophisticated and therefore are better equipped to cope with an economic downturn,” he says.

“They also have more buying power than small retailers and so can push some of the costs back onto their suppliers.”

Construction and professional services businesses also at risk

Overall, the SV Partners August 2016 Commercial Risk Outlook Report found 17,681 Australian businesses are considered to be at high risk of financial failure over the coming 12 months.

In addition to those businesses in the retail sector, the report found high levels of at-risk businesses in the construction and professional, scientific and technical services industries.

In the construction sector, more than 2,600 businesses are in the highest risk category, while more than 1,300 businesses that provider professional, scientific or technical services are also considered at the most risk of financial failure.

The report also highlights locations with the highest number of at-risk businesses, although the calculations are based on the number of businesses operating in a given location.

At the top of the list is inner-city Melbourne, where 816 businesses, or 0.8% of businesses in the area, are at risk, according to the report.

Next in line is Sydney’s inner south-west, where 722 or 1.9% of businesses are at high risk of collapse; Sydney’s CBD and inner-south, with 684 or 1% of businesses in the region at risk; the Gold Coast region in Queensland (652 or 1.2% of businesses); and Parramatta in New South Wales (625 or 1.9%).

The regions where businesses are at least risk of financial failure are Tasmania’s south-east, outback Northern Territory, outback Queensland, outback South Australia and the Barossa, Yorke and mid-north regions in South Australia.

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Eloise Keating

Eloise Keating is the editor of SmartCompany. Previously, Eloise was news editor at Books+Publishing, the trade press for the Australian book industry.

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