Retail in winter of discontent

Eli Greenblat and Chris Zappone
May 22, 2012
The Age

THE fragility of Australia’s retail sector, suffering from intense price competition, a strong dollar and consumers made increasingly skittish by the European financial crisis, has been highlighted by the collapse of yet another discretionary goods business.

Yesterday it was Retravision Southern, a buying and marketing co-operative that supplies a range of consumer electrical goods to more than 100 independently owned Retravision stores in Victoria, Tasmania and southern New South Wales.
It was placed in voluntary administration after piling up more than $30 million in debt.

It is the latest in a string of high-profile retail collapses over the past 18 months that has included once mighty retail brands such as Borders, Angus & Robertson and Colorado Group, while publicly listed businesses such as consumer electronics retailer JB Hi-Fi, surfwear group Billabong and furniture and electrical group Harvey Norman have issued profit warnings that have sent their share prices crashing.

According to Goldman Sachs, the retail carnage in 2011 included 19 bankruptcies and restructures of major retail brands. A total of 515 retail outlets closed in the 2011 calendar year, including Colorado, which shut nearly 30 per cent of its nationwide store network, and RedGroup (owner of Borders and Angus & Robertson), which closed nine out of 10 of its branches.

In addition, the failures of Sleep City, WOW Audio Visual Superstores and GAME in 2012 have meant the closure of 174 retailing sites.

Gerry Harvey, executive chairman of Harvey Norman, which earlier this month unveiled a 44 per cent profit slump for the third quarter, said that over the past 18 months trading conditions had got “progressively worse”.

“The whole appliance and computer industry is under more stress now than it’s been for a very long time,’’ he said.

And the news does not look like getting better soon. Coinciding with yesterday’s collapse of Retravision Southern, it was reported that retail sales growth fell to its slowest pace in seven months in April as worries about the European crisis hit local spending.

Commonwealth Bank’s Business Sales Indicator rose 0.5 per cent in April, slowing from 0.6 per cent in March and 0.8 per cent in February. The April result was the weakest since October.

“While there has been positive momentum in spending, trend growth has eased over the past four months,” said CommSec chief economist Craig James, who raised the possibility of slower growth to come.

“The ongoing challenges faced overseas continue to factor into local spending decisions and, whilst this uncertainty remains, it’s likely we will continue to see lower growth in the near to medium term,” he said.

The retail sector is under strain on several fronts. The strong dollar has tempted many consumers to shop online on overseas websites. Its strength has also lowered the prices that local shops can charge on goods they import. And uncertainty about mortgage rates and the health of the economy has clobbered consumer confidence.

Bryan Webster, appointed as voluntary administrator to Retravision Southern, said yesterday the pull-back in consumer spending was a key aspect of the business’ financial problems and was reflected throughout the broader retail sector.

However, the resources boom is underpinning growth in a minority of regions around Australia, particularly the commodity-rich state of Western Australia, where the regional Retravision buying group had considered this month acquiring Retravision Southern and integrating the business into its much stronger operation.

Those plans could now be derailed by the collapse yesterday.

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