Seven major Australian retailers are facing extreme risk of financial failure over the next 12 months, including a large clothing retailer, two computer retail giants, one big supermarket/grocery store and a large newspaper/book retailer, according to an analysis by SV Partners.
According to the SV Partners August 2016 Commercial Risk Outlook Report, these seven large retail players have annual turn over of more than $100 million, indicating they are retailers well-known and loved by Australians.
These major companies join more than 1,200 retailers of all sizes Australia-wide whose financial records show that they are at high risk of financial failure over the next 12 months.
These predictions build upon an analysis from SV Partners conducted in March of this year which predicted the collapse of a number of major retailers in the 12 months following. Man to Man, Far Pavilions and Meredith & Moore are just some of the retailers that have collapsed since SV Partners first Report was published in March this year.
The SV Partners August Report drilled down further on the financial risk profiles of retailers across the country, including the examination of more than 20 million financial records from the last five years and analysis of bill payment history for businesses from the last two years to provide a thorough review of business health across Australia.
Findings from the new data revealed that clothing retailers were the most at risk sub-sector within the industry with 91 businesses deemed as high risk of financial failure, followed by the supermarkets and grocery stores sub sector with 79 of these businesses sitting in the same category.
SV Partners Managing Director Terry van der Velde said that although the Australian retail climate has shown some growth and many retailers were safe, some companies are unlikely to recover.
“We have seen a number of major retailers enter into external administration in recent months, and this unfortunately is not the end of tough times for the industry.
“Financial failure is almost certainly on the horizon for more than a thousand retailers of all sizes across the country, and significantly, for some big retail names.
“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.
“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.
“Unfortunately, many of these businesses will not be able to hang on for the lucrative Christmas period.
“It is crucial that retail businesses keep their finger on the pulse – changes in market share, price and demand need to be monitored and reacted to quickly.
“We urge businesses to look at the underlying assumptions of their business plans and projections within the context of the evolving retail space and adjust these key business tools as necessary,” he said.
Data from the Australian Securities & Investments Commission (ASIC) supported SV Partners findings and paint a picture of the distress faced by the industry. The data shows 903 retailers entered into some form of insolvency administration during the period from March 2015 to March 2016, reflecting a 6.7 per cent increase over that period.
Apart from the retail sector, businesses operating within Australia’s construction and professional, scientific and technical services, were also found to have the highest numbers of businesses at high risk of default within the next 12 months.
The Report’s findings show some 17,681 Australian businesses are at high risk of financial failure over the next 12 months.