CreditorWatch's latest data reveals ongoing difficulties in Australia's retail sector, with the highest business failure rates observed in food and fuel retailing.
Anneke Thompson, CreditorWatch chief economist, suggests consumer confidence will likely remain weak until several cash rate cuts occur, expected by late 2025.
“Only then will mortgage holders start to feel more confident that they have some breathing space in their monthly budget,” Thompson said.
“Given we are unlikely to see the second or third cut to the cash rate until the final quarter of 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% increase in insolvency rates over the year to April 2024.”
Retail faces significant pressures
Despite some resilience, food retailing faces significant pressures, including a high proportion of overdue invoices and a shift in consumer preference towards value supermarket chains.
Consumer spending in Australia remains weak, with flat retail spending since early 2024. The Treasury anticipates that income tax cuts and cost-of-living measures will boost disposable income in 2025, potentially increasing retail spending. However, this impact is yet to be realised.
Key insights include:
- Food and fuel retailing have the highest business failure rates at 5.40% over the past year.
- Food retailing has the highest proportion of invoices overdue by more than 60 days at 9.41%.
- Fuel retailing leads in external administrations at 0.81%.
- Motor Vehicle and Motor Vehicle Parts Retailing exhibits the lowest business failure rate at 4.27%, equal lowest external administrations at 0.49%, and the smallest proportion of overdue invoices at 6.68%.
Food retailing outperforms discretionary retail
Food retailing has shown resilience compared to other store-based retailing sectors, which include discretionary items, according to the latest data from the Australian Bureau of Statistics (ABS).
The Retail Trade data for April 2024 reveals a year-on-year spending decline in several categories: Household Goods (-1.4%), Clothing, Footwear and Personal Accessories (-2.5%) and Department Stores (-1.3%).
Overall, the Retail Trade sector constitutes 10.6% of all Australian Taxation Office (ATO) tax defaults currently lodged. However, the 'other store-based' retailing category accounts for a significant 71% of these defaults, reflecting the reduced consumer demand in these stores.
In contrast, only 14% of Retail Trade ATO tax defaults are in the food retailing category, underscoring continued consumer spending on essentials at supermarkets and food retailers. Supporting this, retail trade data shows spending on Food Retailing increased by 2.0% over the year to April 2024, compared to a 1.3% rise in total retail spending.
Despite its relative strength, the food retailing sector faces challenges. It has the highest proportion of invoices more than 60 days overdue, at a notable 9.41%. Other store-based retailing follows with 8.05% of invoices outstanding.
Additionally, business failure rates are highest in food-based retailing, matching those in fuel retailing at 5.4%. This trend is likely due to smaller food suppliers, such as butchers, bakers and greengrocers, struggling to compete as consumers shift to value-oriented supermarket chains.