Black Friday test for retailers as insolvencies double in a year

Many small business owners are sweating on a record sales period delivering enough income to stay afloat.

Black Friday is set to be make or break for retailers across the country, as many small business owners sweat on a record sales period delivering enough income to stay afloat and experts warn the weekend could be a tipping point.

Retailers are under increasing strain from the cost of living crisis as consumers increasingly shop for bargains and divert cash once spent on discretionary goods into essential items.

Data from Australian Securities & Investments Commission shows that 73 retail businesses were declared insolvent in October – double the 36 a year ago.

October was also the second-highest month of retail collapses since pandemic era restrictions were removed.

Overall there were 906 businesses going insolvent in the month compared to 473 in the prior corresponding period. It was the second highest number of insolvencies for 2023, with August narrowly higher.

The Australian Retailers Association has estimated that $6.3bn will be spent over the Black Friday and Cyber Monday sales period, up 3 per cent from 2022.

ARA chief executive Paul Zahra told The Australian that there was an increased chance that retailers who did not have a good sales period could be closed by February.

“If a discretionary retailer doesn’t do well through Christmas, where up to two-thirds of their profits are made, it’s unlikely they’ll be around in February next year because they won’t have enough cash flow to sustain the winter months, where many lose money,” he said.

“Most retailers will trade through and then make that assessment in the new year. We don’t see any respite for the industry until at least mid-year next year, possibly 2025.”

Bamboo clothing brand HARA the Label, which has nearly 300,000 followers on Instagram, was among the most high-profile insolvency claims in October after it entered court liquidation. Electric Bikes Australia, the owner of Queensland retailer Ride Electric, was placed into voluntary administration, ASIC records show.

Australian Retailers Association CEO Paul Zahra says Black Friday is set to be a record weekend for retailers. Picture: David Swift.

The past few months have seen a number of other retailers go out of business, including Victorian fashion company Design A Space and Nobody Denim, which had $3.6m owing to creditors before Outland Denim snapped up the brand.

Restructuring and insolvency specialist Todd Gammel, partner at HLB Mann Judd, said that Black Friday was likely be the test for many retailers, with many under the pump, especially those relying on debt to fund growth.

“For a few retailers, they will have to make some very serious decisions if Black Friday is not good,” he said.

“Many are in growth phases, so they’re loss-making as well. But they’re supported because they’re going through a growth phase and if that doesn’t come through, or it’s not at the level required to take that next step, that could be where funding or support may be pulled.”

Construction continued to make up the bulk of insolvency claims in October, with the price of materials making fixed-price contracts unsustainable for many operators. he sector had 236 insolvencies, which was more than the same time in 2022 but down from the recent peak of 308 in August.

Accommodation, food, transport, postal and warehousing businesses were also under ­pressure.

Mr Gammel said that the current climate meant that businesses had to become efficient if they wanted to survive.

“The current conditions should drive the inefficient businesses out of business,” he said.

The Reserve Bank has warned that the economy needs to become more productive otherwise it would be hard for inflation to return to its target of 2-3 per cent.