Small business failures on the rise as retailers feel the pain

This was the headline by business reporter Rachel Pupazzoni on ABC news this week. And painted a fairly bleak picture of the current and future prospects for the Retail sector.

Statistics quoted 43% of fashion operators fear they will become insolvent in the next few years and more alarmingly 53% of food retailers don’t think they will be around for much longer.

With the Consumer Price Index for September Quarter showing continued low growth of 1.8% (All Capital Cities All Groups) and Retail Sales also showing similar outcomes, no wonder the retail failure rate is one-and-a-half times the small business sector average.

Noting supplies are facing identical conditions resulting in a margin squeeze – the 3 main threats to survival currently are:

● Wages

● Finance

● Occupancy Cost

Wage growth is also slow, however penalty rates are not meeting consumers shift to more flexible shopping hours. This often is the highest single expense, apart from cost of goods, retailers face and place an enormous personal burden on Leases.

Finance or rather access to finance is virtually non-existent since the Finance & Bank Inquiry- call it for what is- a credit squeeze. Without access to working capital to assist with the ebbs and flows of retail sales, cash flow management is a constant battle and emphasises the importance of sales results through high season and holiday periods.

Occupancy Costs (rents) have outstripped the true market value and taking into account all the Key Performance Indicators (KPI’s) mentioned here. Landlords cannot reasonably expect to be achieving year or year fixed growth and inflated churn rents when a retailer fails and leaves.

If ever there was ever the right environment to have that serious chat with your Landlord about how your business is tracking it is now!

Some time in the next 12 months your lease will celebrate an anniversary, and guess what? The Landlord has a present already lined up- a rent increase! Don’t you think now is the time to say to the Landlord- no gifts this year!

Waiting until the gift is unwrapped is way too late- mark your 2019 planner to sit down with the Landlord 6 months before the lease anniversary and that time might just be now.

The compounding effect of waiving just one rent review in a 5-year lease can save you tens of thousands.

Phillip Chapman, CSMA, Founder Director-Lease

To put your lease through the MiLease Simulator, go to www.lease1.com.au/registration-page/

 

 

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