Those were the words of NAB group chief economist Alan Oster when commenting on the state of the retail sector during an NAB Economics podcast. This was in light of a recent leading business survey declaring that the sector was “clearly in recession.”
The dire situation, however, seems to have actually escalated in just the past few months compared to the last two years. Firms behind popular retail brands like Focus on Furniture are, going into administration while company closures in the sector have become increasingly rampant.
The recent disruptions due to e-commerce, coupled with the slow growth of the Australian economy, were already doing enough damage to the sector but retailers are now officially calling it a crisis.
To better understand how this decline had accelerated, one can also look at how retailers were behaving four years ago. Another retail survey by Macquarie Wealth Management notes a very steep contrast, as evidenced by the radical shift in attitude towards expanding floor space in stores.
“Retailers are far less bullish on their space requirements today than they were five years ago, when we first conducted this survey. Only around 7% of large retailers currently intended on increasing space on a one-year view. This compares to around 61% back in 2014. In fact, 24% expect to decrease space over the next 12 months,’’ the report says.
With recession now on the minds of many business and thought leaders in retail, there has been increasing sentiment that rent reductions need to follow.
Finally, someone is saying the R word about Retail Trade- recession. The other Rs are rent reductions.”
But while rent reductions may ultimately be the only way out, finding the means to enable to those reductions will not be easy with rent rises deeply rooted in the current leasing system. Only time will tell if landlords will cave to the pressure of retail recession woes.
Phil Chapman is the director of retail leasing specialist Lease1.