New Index: 33% Of Small Retailers Say Profits Slumping
The first Australian Retailers Association & American Express Small Retail Index findings were released and it’s not only Australian consumers feeling the pinch of inflation and an economic slowdown but small and medium-sized Aussie enterprises (SMBs).
Due to a decline in consumer spending and a rising cost to do business, 41% of SMBs said they are performing below 33% 2023 fiscal projections and 8% shared they are far below.
Only 17% of SMBs surveyed said they were not as affected with 15% saying they had little change to profits and achieved over their forecasted margin and only 2% said their business had achieved far above their forecasted 2023 financial year profits.
According to ARA CEO Paul Zahra, the index underlines the extraordinary stress small retailers are experiencing and he said that he cannot remember a tougher time than the current challenging environment the retail community is currently experiencing.
“2023 ushered in the perfect storm for retail – a spending slowdown, coupled with the rising cost of doing business, all taking place alongside the largest set of government reforms in decades and a retail crime wave that is impacting the wellbeing of workers and the bottom line of companies,” he said.
The index was launched to discover a clear picture of what SMBs are up against today and surveyed roughly 400 small and medium retail businesses in Australia with a high percentage of a turnover of around $5 million.
For Zahra, he is gravely worried for small retailers who are left to do their best despite current economic conditions.
“We are concerned about the outlook for small retailers in these tumultuous economic conditions and the toll these pressures are taking. Small businesses are the cornerstone of our economy and it’s vital that they receive adequate support,” he said.
With customer buying activity having been recently reported as declining 1.7% in June in the latest Commonwealth Bank Household Spending Intentions index, it appears SMBs have already begun to be affected.
Retailers have had to make tough decisions as they see their margins dwindle. For those surveyed, the response has been to reduce staff (12%) or reduce opening hours (6%).
“We’re seeing a lot more of that already, with Monday being the day to close,” Zahra said.
“The consumer is now behaving similarly to the GFC [global financial crisis], except back then, there wasn’t a ‘cost of doing business crisis’,” he said.
A credit reporting agency, CreditorWatch, has also released monthly data which highlights that businesses are struggling with data revealing that business-to-business payment defaults had spiked up 52% from last year.
“The beginning of the new financial year is likely to bring increasing pessimism among Australian business owners, particularly those reliant on discretionary spending,” said CreditorWatch in their Wednesday report.
Despite indications of SMBs being in for a long road ahead, Emily Roberts, Vice President and General Manager of Consumer and Commercial Services at American Express said these businesses are resilient and adaptable, especially in times of hardship and Australians can help by continuing to support smaller businesses.
“Retailers that adapt how they build, market, and sell their products to meet new consumer behaviours will be best placed to acquire new customers, secure their loyalty and navigate the challenges to come.”