More than half small to medium-size retailers (55%) feel uncertain or concerned about their financial future as consumer spending slows, according to new research by the Australian Retailers Association (ARA) and American Express, which was presented at a business roundtable event in Sydney.

More alarmingly, the Small Retail Index shows that while 57% of SMBs are defying economic headwinds to meet or exceed financial benchmarks, 43% are falling short as more than one-third (36%) battle cost increases of more than 10% in the last 12 months.

Consumer spending remains the most pressing concern (57%) ahead of wage costs (41%), cost of goods and services (39%), staffing shortages (29%) and cash flow management (29%).

“It’s a difficult time to own a small business in Australia – one of the most difficult in recent history,” ARA CEO, Paul Zahra said.

“Our small retail community is feeling the crunch as shoppers scrutinise their spending and costs continue to increase across the board – wages, rent, utilities, insurances and supply chain costs. Despite the tumultuous operating environment, most retailers are showing extraordinary resilience by investing in innovation, e-commerce and sustainability to prepare themselves for the future.”

Emily Roberts (American Express) & Paul Zahra (ARA).

American Express vice president and general manager of consumer and commercial services, Emily Roberts said, “Small businesses are the heart of our local communities and backbone of our economy, and they are operating in what is one of the most challenging retail periods in recent times. As we head into the busiest retail season of the year, Shop Small is a reminder to Australians to get out and spend with small businesses as often as they can.

“Every dollar spent with a small business is a dollar towards maintaining the vibrancy of our local communities, rewarding the tenacity of business owners and ensuring that our local stores open their doors for another day.”

Commissioners share top concerns for local SMBs

Current inflationary pressures and the rise in cost of doing business is reminiscent of 1987, when most businesses were not operating in that environment, according to NSW Small Business Commissioner, Chris Lamont.

“Most small businesses do not have the strength to carry on,” he said. “They used home equity to start their business, but the younger generation do not have this capacity. We are also seeing that younger entrepreneurs are good with ideas, but not as adept with cashflow or contracts.”

NSW Small Business Commissioner, Chris Lamont.

“In terms of leasing, we are seeing 80% resolution of disputes at or before mediation. This is because landlords are not sure if they will get another tenant in this climate. Also, if they do win, they will not get a good outcome from someone going bankrupt. At the moment we are looking at a bottoming out of business index and we are currently on the bottom of the ‘U’.” 

VIC Small Business Commissioner, Lynda McAlary-Smith echoed the value in taking the mediation pathway with resolving leasing disputes – even when it looks like it’s unresolvable.

“It’s uncommon to deal with a small business leasing dispute less than $500 million – we have a 76% success rate, and it does work – even from a landlord perspective,” she said.

VIC Small Business Commissioner, Lynda McAlary-Smith.

“There is some naivety from small business owners in leasing contracts. Often, they sign up for lease terms and do not understand the financial commitments; often spending a few hundred thousand dollars on a fit out. When signing up for a lease, it’s critical to read the terms and be fully informed.

“We are seeing people willing to start small businesses with a passion for serving the community but we must understand how to collectively support that. It’s not great to see people just walking into well paid jobs, which some young people see as the preferable pathway. We need young people to come into small businesses for the benefit of the country.”

QLD Small Business Commissioner, Dominique Lamb is seeing a lot more lockouts from landlords, but a 71% success rate in mediation and resolving disputes.

“There is a high rate of business failure due to lack of basics in financial literacy because new business owners don’t want to pay for legal advice –and this is not seeing them sustained in the long-term,” she said.

QLD Small Business Commissioner, Dominique Lamb.

“Small businesses are the lifeblood for many communities, but we continue to be concerned about what that looks like in the future. There’s threat to life once a week from a small business owner, which is extremely alarming.”

The Council of Small Business Organisations Australia (COSBOA) CEO, Luke Achterstraat said his members are fatigued from lack of policy on the cost of doing business front.

“There is a need to improve government policy because our role is to inform small businesses on their obligations,” he said.

COSBOA CEO, Luke Achterstraat.

“We are currently running the Cyber Wardens program, a 30-minute online course, to help reduce cyber risk which has increased to be among the top four business threats – it’s a real and present danger.  

“The latest Women’s Economic Equality Taskforce report identified one-third of small business owners are female. It’s only a small increase from previous reports so we need to look at what policies can be made to improve that further.”