AUSTRALIA | Amid interest rate rises, Retail and hospitality businesses have become insolvent at a faster pace than the troubling construction industry.
The full impact of aggressive interest rate rises have rippled through the Australian economy.
Alongside construction, industries sensitive to discretionary spending have felt the brunt of interest rate increases and cost-of-living pressures over the past two years, and many more operators are expected to tip over the edge in the coming months.
The latest statistics from the Australian Securities and Investments Commission show there were 3412 in the December quarter, up 47.1 percent from the previous year.
Construction accounted for the lion’s share for the period with 824 failures, up 38 percent, followed by accommodation and food services, and retail trade.
Accommodation and food services recorded the fastest rate of any sector in the December quarter with claims up 92.4 percent to 504 from the same period in 2022, while retail trade increased 40 percent.
Revive Financial head of business restructuring and insolvency Jarvis Archer said it was anticipated that insolvencies would get worse before they got better thanks to a drop in consumer spending.
“The two sectors most reliant on consumer spending are hospitality and retail, and it’s showing in the sentiment of business owners and rising insolvencies in these sectors,” he said.
“The cash buffers businesses and people accrued over Covid have been depleted over the past six to 12 months. On the personal side, business owners are less able to refinance their houses because of the financial position of their business, and more difficult lending criteria due to higher rates.”
Recently, the ABS reported that retail turnover fell 2.7 percent in December – the sharpest decline since the introduction of the GST in 2000 once the pandemic-era fall of 4.2 percent in August 2020 is excluded.
In the past month, Japanese restaurant chain Okami put more than a dozen of its venues into voluntary administration across the country, blaming inflation and pandemic costs, while several Muzz Buzz outlets have also gone insolvent.
Restaurant and Catering Australia chief executive Suresh Manickam said the sector was resilient despite consumers choosing more affordable food options.
“Our sector is very resilient, but it is feeling the pinch with an increased cost of living adding a lot of pressure,” he said.
Manickam added that soaring power bills were putting a lot of pressure on hospitality businesses.
“Energy is the biggest component of hospitality businesses from cooling, heating and cooking, and rising energy bills have had a big impact.”
Manickam called on the government to deliver cost of living reforms and packaging that will help bring down energy prices.
“Whereas before a restaurant might review their menu prices on an annual basis, it becomes much more frequent because of the current situation, so it is critical we get energy prices under control.”
Read more here.