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Insolvency specialist predicts tough 2018 for retailers

Oroton was just one of a number of high-profile retail brands that collapsed in 2017.

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Many Australian retailers are in for a bumpy ride this Christmas and into 2018, according to insolvency specialist Jirsch Sutherland.

Jirsch Sutherland partner Andrew Spring said retailers not selling consumables are having a particularly tough time.

“We’ve already seen a number of high-profile retail brands collapse in 2017—including 80-year-old brand Oroton—which paints a gloomy picture for other Australian retailers,” he said.

“We predict we haven’t seen the worst of it, and that the new year will see many more home-grown brands go into insolvency.”

Spring said two of the greatest factors contributing to tough conditions for retailers, which can lead to insolvency, are high leasing and staff costs.

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“Other key reasons include stock costs, obsolete stock issues, poor accounting or record-keeping practices, no-interest competitors and low margins—we see this time and time again.”

Ecommerce is also having a major effect on the retail sector, particularly with the arrival of Amazon. The most recent business expectations survey from insights firm Dun & Bradstreet showed one in five retailers and wholesalers are concerned about the potential negative impact Amazon will have on their business.

“Ecommerce is a necessity now, not a point of difference, especially with savvy competitors entering the market,” said Spring. “However, some retailers are being left behind or have not sufficiently invested in their ecommerce platforms; they’re finding the fixed costs of having a bricks-and-mortar presence alone are too high.

“Many retailers have simply been holding on to achieve the pre-Christmas sales, but after the holiday period ends there are many who will struggle to maintain their sales levels to meet their overheads. The declining trading base means many are not in good shape to survive an extended lull over the holiday period.”

To succeed, Spring said retailers need to understand that online shopping has expanded their customer base but also increased the number of competitors in the market.

“Geographical barriers to entry are being eroded and if retailers are unable to find ways to explore new markets for their products, then they are likely to see their sales base continue to decline as their competitor’s pitch to their historical customers.”

Franchisees worst affected

While most retailers are feeling the effects of rising rents and staff costs, franchisees have the added burden of paying franchise fees, which are often based on sales rather than profits.

Jirsch Sutherland partner Amanda Young said the crackdown on franchisees paying incorrect wages highlighted the struggles faced by franchisees to turn a profit. Another major issue is lack of support.

“We have been involved with a number of franchisees and that’s a common complaint,” Young said. “The level of support doesn’t match expectations.”

She encouraged franchisees to invest in people and companies that could help their business achieve success.

“Accepting you can’t run a store alone and calling on help is not a weakness,” Young said. “That might mean hiring good people to effectively manage all the necessary operations of your store, or it could mean investing in outside consultants, service providers or companies that can help their stores in various ways the franchisee alone cannot.”

 

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