Failure rate in retail sector highlights ongoing challenges
Retail businesses are struggling to stay afloat, with failure a common theme amongst many in the past year, says CreditorWatch.
A lack of consumer spending in the first half of 2024 has resulted in significant strain for retail businesses, according to a recent CreditorWatch study.
There are a variety of sub-industries feeling the strain, but according to the report, those with the highest proportion of business failure in the last 12 months were:
- Fuel retailing (5.4 per cent)
- Food retailing (5.4 per cent)
- Other store-based retailing (4.96 per cent)
- Non-store retailing and retail commission-based buying and/or selling (4.49 per cent)
- Motor vehicle and motor vehicle parts retailing (4.27 per cent)
Treasury has forecasted incoming tax cuts and cost of living incentives in the budget, but CreditorWatch is sceptical as to whether this would affect consumer spending habits. In a statement, the organisation said spending will likely stay down “until there are two or three cuts to the cash rate.”
“Only then will mortgage holders start to feel more confident that they have some breathing space in their monthly budget,” said CreditorWatch chief economist, Anneke Thompson.
“Given we are unlikely to see the second or third cut to the cash rate until the final quarter of the 2025 financial year, we expect that insolvencies in the retail sector will increase, especially amongst smaller, discretionary retailers. The retail trade sector has already recorded a 35 per cent increase in insolvency rates over the year to April 2024.”
The rising cost of living is driving many of these trends, with non-essential spending becoming more and more of an afterthought.
However, CreditorWatch noted that the food industry, in particular, has shown continued resilience. This sub-industry faces its own issues, with things like higher proportions of overdue invoices and a trend of consumers moving away from smaller food suppliers in favour of value supermarket chains.
Food was recognised as performing better than other store-based retailing. According to ABS data referenced by CreditorWatch, spending is down year-on-year on household goods (-1.4 per cent), clothing, footwear and personal accessories (-2.5 per cent) and department stores (-1.3 per cent) categories.
The retail industry is a crucial part of the economy and makes up 10.6 per cent of ATO tax defaults currently lodged. Meanwhile, the ‘other store-based’ retailing category accounts for 71 per cent of these retail trade defaults.
However, just 14 per cent of retail trade ATO tax defaults are in the food retailing category, as food spending is a necessity. Food retail spending saw a 2 per cent increase between April 2023 and April 2024. Meanwhile, total retail spending saw a 1.3 per cent increase.
