Many Australian businesses are afraid that new lockdowns will give them no choice but to close their doors permanently as online shopping remains the only way they retail stores can continue to generate revenue during the new lockdowns in Sydney and Melbourne.
With over half the Australian population in lockdown to prevent the spread of covid-19, businesses are struggling because customers are shutting their wallets.
Even before the worst of the current Sydney lockdown, and Victoria and South Australia’s latest lockdowns, June’s preliminary retail sales figures provided by the ABS painted a dismal picture.
Consumer spending was off 1.8 percent overall during June 2021, with the falls concentrated in Melbourne (-3.5 per cent after being locked down at the start of that month) and Sydney (-2 per cent as social distancing restrictions gradually kicked in over the second half of June).
All industries except for food retailing (+1.5 per cent) saw sales fall in June 2021.
Figures from the ABS showed that cafes, restaurants and takeaway food services, as well as clothing, footwear and personal accessory retailing saw the largest falls.
JobKeeper supported up to 3.5 million workers at one-point last year, providing decent wages and cementing a link between bosses and employees.
At the same time, a coronavirus supplement was added to welfare payments, boosting the amount of money in the economy.
Now that JobKeeper has ended, businesses impacted by lockdowns can attempt to access state-based schemes. Workers who’ve lost hours may have access to a payment modelled on those given to survivors of natural disasters.
Data from the weekend when Sydney’s lockdown was tightened, but before Victoria’s was extended shows consumer confidence fell sharply.
The 5.2 percent drop was the steepest since the chaotic period in late March 2020 as the pandemic took hold.
“It’s important to note that consumer confidence is still a lot stronger now than it was at the worst of the pandemic last year, or even during the extended lockdown in Victoria last year. So, confidence is still not too far below the long-run average. History does show that as soon as restrictions start to ease we should see confidence rebound pretty quickly” said Catherine Birch, senior economist with ANZ Research.
Perhaps surprisingly, the smallest drop was in NSW (-2.3 percent) while the biggest were in states not at that time subject to lockdowns, including South Australia (-7 percent), Western Australia (-8.8 percent) and Tasmania (-11.3 percent).
“The hit to confidence from a lockdown in one area actually flows through to other areas as well because there is that concern that cases can spread and lockdowns will be enforced in people’s own states as well,” said Catherine Birch.
Consumer confidence also dropped 6.6 percent in Victoria and 2.4 percent in Queensland.
Another major problem currently occurring is the fact that businesses who have already been stretched by lockdowns, restrictions and the end of stimulus and support programs like JobKeeper and coronavirus supplements boosting welfare payments.
“The big thing is we’ve seen a drop off in the number of invoices and the value of those invoices that are being issued. This immediately spells a reduction in revenue in particular and, naturally, a reduction in savings and more pressure on the finances of businesses as well” says CreditorWatch chief executive Patrick Coghlan.
The credit reporting service gets information from inside companies that helps assess how risky they are.
Like many observers, Mr Coghlan expected an increase in companies going bust when JobKeeper ended. That did not happen but, instead, turnover continued to fall.
“Businesses had less money coming in, less revenue is being generated. For small businesses, any money squirreled away in the good times is likely gone. There’s maybe two weeks worth of savings for most small businesses. Those savings have been probably obliterated since the end of JobKeeper and JobSeeker. And now they’ve got these huge wage bills that will just essentially eat all savings within a couple of weeks” said CreditorWatch chief executive Patrick Coghlan.
Because businesses are consumers too buying labour, supplies and renting space an outbreak of penny-pinching will hurt beyond just one shop’s door.
“You see them keep the purse strings closed. They don’t buy anything that’s not totally necessary to their business operations. They’re not hiring, they’re not investing in technology or the future. There’s this huge uncertainty out there” said CreditorWatch chief executive Patrick Coghlan.
The team at C&D Restructure and Taxation Advisory are here to help. As part of the Vault Group we can offer the full suite of financial products and advice to help you navigate the business landscape. Schedule a meeting here via Calendly or give us a call on 07 36086800.
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