Retail business in Australia have suffered from extremely low growth for years, with historic numbers of retail businesses going into administration every year since 2017. Low wage growth, a high cost of living in urban areas, high levels of debt, and a weak housing market are exacerbating the pressure that growing online sales were already putting on Australian retailers.
The extent of the economic slowdown was particularly visible during 2018’s Christmas season, during which seasonally adjusted turnover shrank by 0.4 per cent, rather than providing a much-needed boost to hard-pressed businesses. Going forward into 2019, retailers of all sizes have continued to go out of business in numbers. The news isn’t all bad for retail businesses, however.
By ensuring their resilience to cash flow shocks, and innovatively driving sales, businesses could also take advantage of potentially massive growth opportunities created by the departure of their competitors.
Non-essential products are losing ground
According to the Australian Bureau of Statistics (ABS), retail turnover has experienced modest growth in some sectors, while remaining stagnant in others in the first quarter of 2019. Department stores, as well as shoe, clothing, and personal accessories retailers have been hit the hardest, with virtually no growth occurring to help department stores recover from a 2.1 per cent drop in January.
Essential purchases like food and household goods have continued to grow modestly. At the same time, non-essential purchases have shifted away from more expensive brick-and-mortar shops, to cheaper ecommerce options. While that figure hasn’t changed significantly month-over month, this year so far, it grew by 20 per cent since last year, bringing online sales from a total of 4.7 per cent of all retail turnover a year ago, to 5.6 per cent today.
Consumers are cutting costs
It’s apparent just by looking at Australia’s broader economic situation, and what kinds of retailers are suffering, that consumers are looking to cut costs. In the past decade, Australians maintained high consumer spending by first sacrificing their personal savings, and then going into debt. Today, many of these Australians face high levels of debt, a high cost of living, and low wage growth.
Homeowners, many of whom rely on the equity of their homes to secure loans, are under even more pressure. Not only have many of these individuals lost their ability to borrow, nervous lending institutions may also be pushing them to pay off outstanding loans to bring their loan to value ratios down to acceptable levels.
Businesses are left to innovate their way to success
The difficulties faced by retailers, stagnant wage growth, and Australia’s larger economic slowdown are not being ignored by the government, but perfect systemic solutions simply don’t exist. Labor’s push for a minimum wage boost attempts to address the longer term consumer spending issue, but would greatly exacerbate the financial difficulties faced by retailers, many of whom employ low-wage workers, in the near term. Retailers who are looking to grow can’t afford to just wait for economic conditions to create opportunities. Rather, they need to ensure that they’re positioned to create their own.
Improve cash flow to reduce costs and become more resilient
Both local shops and massive international chains have folded all over the country since 2017. For many, this was because they simply couldn’t manage the financial impact caused by the slowdown. When customers stopped showing up they couldn’t pay suppliers, and simply went under.
Fortunately, businesses do have financing options to help manage difficulties like this, and to buy time to find solutions. Supply chain finance and trade finance help businesses access the funds they need to pay suppliers, giving them the time they need to sell their stock, or to come up with alternate solutions.
Offer the right products in the right way
Australians aren’t looking to stop buying things; they’re trying to spend less money. To drive sales, retailers need to ensure that they’re offering products that customers can actually afford. Moreover, shopping needs to be convenient.
While brick-and-mortar shops have an edge over online businesses in that they allow customers to physically interact with products, online stores can affordably provide a vast array of options that simply isn’t feasible in a physical space. To compete, retailers need to combine their physical outlets with online shopping, allowing shoppers to get the exact product they want shipped to their door at a reasonable price.
The news of failing retail businesses sounds discouraging, but it also represents an enormous opportunity. Overall retail turnover has slowed, but it has not contracted. This means that, as some businesses continue to go into administration, the same total amount of consumer demand is distributed among those who remain. By rising to the occasion to best satisfy that demand, Australia’s remaining retailers will grow to become at least as successful, as well as more financially resilient than their predecessors.