Burning retail triggers insolvency boom!

Via the ABC:

Insolvency practitioners are offering a stark warning to Australian business: get your affairs in order, bad times are ahead.

With their role in turning around failing businesses, or winding them up, the corporate undertakers are an indicator of the broader economy, so it’s telling that they’re hiring, expanding and preparing for a difficult 2020.

“We’re starting to see some interesting signs of distress arising amongst both firms and individuals,” said John Winter, chief executive of the industry’s peak body, ARITA (the Australian Restructuring Insolvency and Turnaround Association).

“Insolvency practitioners, who are bit of the ‘canary in the coal mine’ for the economy, are seeing increasing levels of inquiry from people coming in and saying that they are worried about their business or they’re worried about their personal finances … and what their insolvency options might be.”

Melbourne practitioner Robyn Erskine, of Brooke Bird, agreed with the grim assessment.

Brooke Bird’s staff focus on turning around, or winding up, small- to medium-sized businesses.

They’re busy and expect to have more staff on by this time next year.

“It’s really tough times out there for small business, and it has been for a number of years,” Mrs Erskine said.

“But it’s across the board and, unlike in other periods where we have seen a particular sector [struggling], it’s every sector.”

Retailers at the epicentre of pain

While there is a general malaise, the pain is being felt in one of the most visible areas of the economy — retail. Wage stagnation and low consumer confidence have snapped wallets shut.

“Certainly we know that retail is really struggling and confidence is down generally,” Mrs Erskine said.

“People are just not spending, and not spending maybe because they just don’t have the money.

“It’s not necessarily a ‘confidence’ thing, some people just don’t have money to spend, that’s what we’re seeing.”

New research backs up the vibe. Half of the retailers surveyed by consulting firm Deloitte said 2019 sales were flat or negative.

Retailers expect that to continue, with the worst sales conditions for six years — a fifth expect no growth and just a third, the highest proportion in the survey’s history, tip sales to be up by a weak 2 per cent.

ARITA covers more than 2,000 practitioners.

The industry is counter-cyclical, meaning its fortunes are generally the opposite of the broader economy. As a result of a long run of good times, liquidator numbers are at almost record lows.

“But what’s been really interesting though over the last couple of months, we’ve seen a significant upsurge in recruitment for insolvency professionals,” Mr Winter said.

“So the market is already starting to gear up in expectation of a downturn.”

Mrs Erskine is worried about the coming year, even though it promises to be a time of growth for her firm and industry.

Previous downturns, like the recession of the 1990s and the global financial crisis of a decade ago, had an impact across society, but largely concerned corporate debt. Mrs Erskine is worried economic change means this slowdown will hit families even harder.

“The 1990s, the GFC, that certainly hit sectors in our economy and certainly some families were very much affected,” she said.

The insolvency practitioner is urging businesses to tackle problems, rather than ignoring them.

“The earlier the better,” she said.

“It sounds a bit strange, but the fact is that if we can see people early we can perhaps put some remediation work together to turn something around.

“But if they leave things too late, it’s very difficult to actually do anything other than to wind them up.”

Review poses questions

The industry isn’t without its own problems. Australian small business ombudsman Kate Carnell is holding an inquiry into the experiences of the more than 8,000 companies that enter administration each year.

“We’re looking at how we make this system better for small businesses and farmers,” she said, launching the inquiry in October.

“Improve the transparency, and hopefully have a system that encourages more turnaround than liquidation.

“The banking royal commission didn’t look at insolvency practices, even though this is one of those issues that is raised time and time again by small businesses, farmers and others. So we think this was a big gap.”

Ms Carnell has concerns about the low rate of business owners that are able to restructure, and whether some liquidators have a conflict of interest.

The peak body — which hasn’t been invited to make a submission — is concerned it’s a hatchet job.

“We’ve had significant numbers of reviews into this profession for many years,” Mr Winter responded.

“There’s been significant law reform and we have two regulators that oversee this profession.

“If that’s not enough of a review, frankly we don’t know what is.”

Mrs Erskine understands the dim view the field is held in, but wants people to know they’re working to fix tough situations.

“We’re not all evil people out there trying to, you know, steal the food off people’s plates and sell houses,” she said.

“We’re really about rehabilitation and really about trying to help people move forward from a very difficult period in their lives.”

David Llewellyn-Smith

David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal.

He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.

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Comments

  1. “We’re not all evil people out there trying to, you know, steal the food off people’s plates and sell houses,”
    That food on the plate is in peril! It’s going to go. But the house? Who do they sell it to? ( I know! Everything has a price)

    • The secret that makes Straya great again is you can keep selling houses to each other in perpetuity and the prices double every 7 years. You just need to accelerate the rate of circulation….. The stamp duty receipts keep overflowing and everyone is happy!! No one else can mimic this, cos Straya is different!!

      • Someone gets it.

        In all seriousness, with a steady flow of foreign money, it doesn’t really matter how high prices go because most of the transactions are existing owners. A median price of 10 million in Sydney/Melbourne is sustainable under the current system. FHBs are not required and can either get f**d (in the case of not having rich/property investor parents) or they can leverage off the parents’ IPs.

      • Jumping jack flash

        Yes!

        Houses are worth whatever we say they are worth. 10m is a pittance. make them 100m. “Affordability” only depends on the availability of debt. Debt to income ratios don’t matter, they can be 50x, who cares?

        The important thing is LVR. At the moment *average* LVR is 50%!
        All good mate! No worries! Let the debt ponzi continue.

        There’s no risk at all.

        • Amazing how good the world looks when you ‘average’ things, doesn’t it, Matt Comyn, you deceitful turd.

    • “But the house? Who do they sell it to? ( I know! Everything has a price)” – as you said everything has a price and eventually the market will be allowed to set the price.
      I am happy to part with $300k for a house near Cronulla.

      • You’re only problem is that a bunch of people will pay double that.

        And why not, interest on $500k debt is only $270/week. Certainly cant rent anything inhabitable for that much.

        Rent money is dead money and all that.

          • Jumping jack flash

            Of course there’ll be jobs!
            Work 5 different jobs delivering food to the lucky recipients of the mountains of other people’s debt!

            If you don’t have at least 5 jobs in the new gig economy then you’re not trying hard enough.

            Access to credit is the most important one of course, and that’s where the LNP and the RBA work their magic on the banks

  2. SnappedUpSavvyMEMBER

    only 5 weeks of trading till xmas and conditions are still soft, this is the worst I’ve ever seen it, the vultures are circling already!

    • I’m going to try and finish knitting a jumper for dad that i started an embarrassingly long time ago, That’s his present. Mum will get something I have yet to start knitting from wool I bought a long time ago. I might buy a few ‘stocking stuffers’ for them (last year we all gave each other sunscreen which was kinda funny but go the cancer council). I have no other real gift obligations. I’ll send a few cards to some old school friends so I reckon Xmas will cost me under$200 and that’s including a present for me.
      If even 10% of the country decides to be as tight as I am retail is well and truly fckd

    • Anecdote: on the weekend I caught up with an engineer buddy of mine for beers, who explained that half his team had just been sacked and he was waiting for the axe to fall on his miserable neck – unless work picked up dramatically. Mind you, his firm is American owned so, they tend to pull the trigger pretty rapidly when business turns down.

      In the past week I’ve been involved in two other conversations with some randoms who had lost their jobs but were hopeful of finding other work.

      All, those piling into property now hoping for windfall gains – good luck with that.

  3. Who needs food when you’ve got a house? Didn’t think basic needs mattered in Oz. In fact wasn’t SloMo trying to have Maslow’s hierarchy of needs changed from the 5 level model to……….House? Good operator Kate Carnell, went to school with her brother Farr.

    • CBA’s household spending intentions show lots of intention to buy houses and completely flat or falling intentions for everything else.

      We are heading closer to the perfect RE utopia where people sacrifice all they have and sit on the floor of an unfurnished mcmansion eating 2 minute noodles, lovingly cooked by the $7 Kmart kettle, the only appliance they own. But the house keeps going up in value so hey, everything is right with the economy.

      Continue ScoMo and Recessionberg! Make the dream a reality!!!

      • Jumping jack flash

        “We are heading closer to the perfect RE utopia where people sacrifice all they have and sit on the floor of an unfurnished mcmansion eating 2 minute noodles, lovingly cooked by the $7 Kmart kettle, the only appliance they own. But the house keeps going up in value so hey, everything is right with the economy.”

        Hmm this kind of reminds me of something…

        Oh I know.
        tulip bulbs!!!

        Get your tulip bulbs..!
        Forego everything to obtain precious tulip bulbs.
        They only ever go up in value, you know.

        Double every 7 years I think it was.

  4. Hey, as long as the bankers are still getting their mortgage repayments from all the mega mortgages that people have taken on because high house prices, it’s all good. Trickle down economics, baby. We give a lot of rich people money and then it comes down to everyone else. I’m sure it will kick in eventually…

    • Dude, trickle down economics DOES work!!

      The rich take a massive pee from on high and it trickles down society, so that the poorest and most disadvantaged get soaked the most while the middle class thanks their uber rich masters that they aren’t at the bottom swimming in smelly yellow stuff. They then wipe themselves off and aspire to be on the next rung up the ladder, with less piss soaking.

      See, you can’t defeat the law of gravity!

      • Mining BoganMEMBER

        I think the elite have moved on from peeing over the balcony. Now it’s poo falling on us ungrateful plebs.

    • I think the important thing to understand here is that so long as prices rise, the banks will continue to have the mortgages paid, because the mortgagor can just withdraw equity to pay for it. Yes, standards and rates will have to be reduced to allow this, but the RBA and APRA seem to have this covered. For now.

      • Jumping jack flash

        Stone the crows, so many people catching on.

        Yes the important part in the new economic model is debt growth.
        The debt must grow faster than interest rates so the next load of debt can repay the interest on the previous load.

        Debt is now growing at annualised 52%!! That’s a safe margin higher than the 3% or 4% or whatever a standard mortgage is (retail) these days.

  5. more and more shops closing in Perth’s centre, just small things like a freshii and two frivolous item stores (perfume and meditating shop). not looking good and will be watching the myer district, they opened a lot of high end stores in the last 6 months so will be interesting to see how long they last in a buckling retail industry.

    • High end? Forrest Chase is so prestigious it has a Dungeons & Dragons store. F$%k Luxury fashion, fetch me a dwarf!

      • you mean white dwarf books? it definitely stands out from the myer side which is full of expensive clothing and accessory stores.

        • Yep, that’s the one. Right next to the Wyle E. Coyote cactus “art”.

          I couldn’t go in because I was too busy stuffing my face at the food truck festival. And because I didn’t want to.

        • Nah he means a DnD store. Not sure how they afford the rent, but the Carillon is going to be demolished in the near future to make way for something else. Not sure we need anything else considering the amount of vacant shops with a meth zombie sleeping on each vacant doorstep, Kind of sums up the economy, the Zombie that just refuses to die (coz it’s already dead)

  6. ““People are just not spending, and not spending maybe because they just don’t have the money.

    “It’s not necessarily a ‘confidence’ thing, some people just don’t have money to spend, that’s what we’re seeing.”” – and that is what comes down to. As I pointed out many times in the past we’ll hit borrowing capacity and face debt to our eyeballs and not being able to buy stuff. Not even basic things like food.
    Outer suburbs are the canary in the coal mine and I’ve observed empty shops in macarthur shopping centre for couple of years now. In the last few months I noticed that more and more empty shops just stay empty. Very few with signs that new bag holder or greater fool will try their luck.
    Once Syd house price hikes hit 7%, I think things will start to slow real fast. And we are not far from that mark now. Plus those price hikes are not happening in the Southwest Syd – not from what I observe.
    If next month employment report prints similar numbers like last one game’s over. Scumo and Josh can talk it up all they want. It will be interesting to see what kind of unconventional policy RBA will take and will Josh be forced to do fiscal and forget his surplus.

    and wtf is going on with RRL. Sold at 4.61 this morning and now trading 4.65.. I am good at picking bottoms but useless at picking highs. fck me $320 extra profit handed over.

      • I still hold some but wanted to reduce the stake as no one really knows where gold price can go short term. Also, if gold price falls again I will def top up more. Below $4.50 they look like a bargain to me as long as gold price stays above $1700 aud.

        btw – SAR went for a splash.. I think price is right but will find out what market thinks.

    • I’d be bereft at that foregone 320, comrade. It equates to 3 bottles of Hakushu. Or 1 bottle of 25yo single. Sad times indeed.

        • Yes I know…just saying.
          SAR I didn’t buy but looks good. PNR at $0.21 🙁
          I’ll give you good advice – If I say I have bought something – Short the hell out of it!!!
          P.S It has to be a good time for this stuff shortly. as you say who knows for Gold. CB’s, especially the FED, can’t afford to let it get out of ”çontrol’ I reckon endless Fiat going into paper gold to keep a lid on it. Maybe they can until USD itself is in strife. A$ another matter perhaps (hopefully)

          • I sold PNR at a loss – last transaction that is as I bought them and sold them few times and made lot of money on them. PNR is the one to watch. If they sack the MD buy with both hands. But as long as that management is there I will not touch them. They have good ground but that is only 1 part of the magic formula. The second part, a management that can take advantage of good ground, is missing big time.

          • Lot os people talk about NST but I haven’t looked at them in more detail. Do you think they can turn Pogo around and make a cash machine?

    • Locus of ControlMEMBER

      “As I pointed out many times in the past we’ll hit borrowing capacity and face debt to our eyeballs and not being able to buy stuff. Not even basic things like food.”

      One of the local butchers here advertises on their chalkboard “we’ve got Afterpay”. Who doesn’t have cash for their meat up-front? Once upon a time, if you couldn’t afford eye fillet, you just bought a cheaper cut of meat, you didn’t put it on credit and pay it off slowly.

  7. “With their role in turning around failing businesses”
    Pretty typical of ABC these days. What a load of total unadulterated BS!
    These parasites get hold of the business and keep the process running until any assets that are left have all been paid to the receivers/liquidators. Charges are like $400 per hour and $300 per hour for the girl doing the photocopying!
    People think Banks are corrupt – wait till you have anything to do with this lot.

    • Hill Billy 55MEMBER

      Back in the early 80’s I worked for one of these and the fee for the principal then was $280 per hour, so I think your $400 is underquoting a bit.

    • Is That why Ms Erskine recommends you call in the toe-cutters early, so they can pick more meat from the carcass, that was your business. Otherwise you will blow more dough til there’s nothing of value left. I guess they like to bankrup the owner then package it for a resale so the banks can get some new victim in to run it. And the cycle repeats.

    • Once appointed, they are not accountable to anyone at all. If there are assets, they can stretch it out forever by taking legal action against whoever and whatever.

  8. driving through oxford street paddington the other day, theres a string of for lease going on half way up the hill. i think it was 5 empty shops in a row.

    • Locus of ControlMEMBER

      High/ Main Street is dead all over the country. Malls are where it’s at (and even some of them are emptying out). Here’s a few dead High/ Main Streets I’ve personally seen this year.

      Bridge Rd, Richmond (Melbourne), VIC
      Hannan Street, Kalgoorlie, WA
      Smith St Mall, Darwin, NT
      Flinders St Mall, Townsville, QLD

      • Omg bridge st Richmond has died??? God that’s sad. I haven’t been for years even though i livejust outside of Melbourne. Actually the olds visited their financial advisor a little whileago and said Chapel st South Yarra was looking pretty sick.lots more cheap Asian shops than before and even 5 vacant shops in a row at one point

  9. Hill Billy 55MEMBER

    In Brissie central this morning. Knicks and Knacks Christmas shop discounting 30 & 40% already. Sad times for retail. Owner acknowledged “down a little on last year”. Well I never!

    • Mining BoganMEMBER

      The new humburger shop maybe six months old is advertising all burgers 20% off. Never seen such a thing.

      Everyone saying removing the bank a couple of weeks ago has knocked foot traffic by 30%.

        • Mining BoganMEMBER

          3082.

          They tried to be an upmarket burger joint amid a sea of blowfly ridden mediocrity. Picked a terrible spot in the shopping centre. Now 20% off all burgers until Xmas.

          Suspecting they may not be there after the new year.

          • darn Vic, you really need to pick a good spot to make those work, there is one in perth city that is doing well since its near all the offices, anything further out from the center is dead.

  10. Here’s a hot tip gladdies and pollies

    Mum’s partner tells me their dad prepaid their mum’s (just dec 2 days ago) funeral…in 1992. $520 all in costs in !

    That is some epic arbitrage on time and inflation.

    I wonder what other opportunities like that there are

  11. IMHO the tax practitioners might be the real canary. we get to see what the ATO and State revenue offices have in the pipeline and many of the insolvencies bankruptcies come from them … both ATO and (at least) SRO are increasingly getting aggressive irrespective of what the (former) INGOT had to say in his report

    • Interesting. Given that taxes pay the, er, tax collectors salaries it’s no wonder they’re taking a closer interest.