Why ecommerce will continue to outstrip physical retail in Australia

The retail sector performance in Australia is considered fair with tight margins that, for many smaller retailers, continue to decrease.

Online retailers continue to put pressure on bricks-and-mortar stores, so retailers must adopt new strategies to remain competitive. However, this requires both the willingness to change and a financial investment.

The outlook for 2018 includes more of the same, and business insolvencies are expected to remain stable, according to the recent Atradius Market Monitor report.

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Mark Hoppe, managing director, ANZ, Atradius, said: “Retail is a competitive and volatile market, so sudden and unexpected defaults can’t be ruled out. Australia has seen many high-profile retailers become insolvent over the past few years and there’s no real reason to think this trend will reverse or even slow down. For this reason, the sector performance assessment for Australia is fair rather than good, despite ongoing sales growth.”

The Australian market is likely to be affected by slower household spending growth, triggered by a weaker housing market and subdued growth in household income. Online retailers will drive growth, especially given Australia’s well-established online banking system and a well-developed logistics infrastructure.

Established bricks-and-mortar retailers continue to compete by expanding their online presence but smaller retailers find it harder to compete, particularly on price and convenience. Therefore, more store closures and businesses downsizing are expected.

Payments in retail tend to be good and no major increases in payment delays or insolvencies are expected in 2018. Financing conditions remain generally positive, and most loans are sanctioned for working capital management and with no major breach of covenants.

Hoppe added: “Given the fundamental shift in the retail industry towards online sales and digitalisation, Atradius has adopted a cautious approach when assessing businesses with traditional, offline sales channels. Therefore, besides focusing on the financial situation of buyers, Atradius also assess management’s ability to adapt to changes within the industry.”

The Market Monitor found that the household appliance and consumer electronics markets are likely to be the best performers in 2018. The worst performers are likely to include automotive/transport, construction and construction materials, metals, paper, steel and textiles.

Hoppe commented: “When it comes to the consumer durables retail industry, Australia looks to be set to fare about on par with most countries in the world. The worst-performing countries are likely to include Denmark, Poland, Brazil, New Zealand, and the United Arab Emirates. The best-performing countries will be Sweden and Taiwan. Australian exporters should bear this in mind when considering which countries to do business in or with.

“Regardless of how positive an industry’s outlook may be, it always pays to conduct due diligence regarding each customer an organisation plans to do business with. Trade credit insurance can also help you assess the financial capacity of a buyer to pay and reduce the risk associated with non-payments that could result in insolvency.”