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Record Sales for Major Retailers as Smaller Businesses Face Financial Challenges

Australian CE and appliance retailers reported record sales during Black Friday and Boxing Day while smaller retailers face financial challenges. A tougher stance on debt collection by the ATO is expected in 2024, which could lead to more business insolvencies.

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Geeta Pillai
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Record Sales for Major Retailers as Smaller Businesses Face Financial Challenges

Boxing Day and Black Friday sales in Australia have been extraordinary for CE and appliance retailers like JB Hi Fi, The Good Guys, and Harvey Norman, with record sales reported. However, smaller audio and custom installation retailers are facing financial challenges with unpaid tax bills. The Australian Tax Office (ATO) is expected to take a tougher stance on debt collection in 2024, potentially leading to an increase in business insolvencies. This comes as unpaid taxes and business debts to the ATO soared to $45 billion in 2023, a significant leap from the pre-pandemic figure of $26.5 billion.

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Defying Economic Pressures

Despite the cost-of-living pressures and the rise of November’s Black Friday sales, Australian consumers’ Boxing Day splurge is tipped to make a “modest” jump on 2022’s spending. The Australian Retail Association estimates that Australians spent $24 billion on Boxing Day Sales, marking an increase of 1.6% from the previous year. However, when accounting for population increase and inflation, real retail sales would have fallen by about 6% over that period. Retail sales volumes fell by 1.2% in aggregate terms and by 4.5% in per capita terms.

Financial Challenges for Retailers

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Retailers in the discretionary space have been hardest hit as households cut back on spending due to soaring mortgage and rent payments and general cost-of-living. Australian real per capita household disposable income collapsed by 6% in the year to September 2023, and household consumption fell by less (-1.9%) than incomes (-6.0%) over the same time period. With the household savings rate already near zero, real per capita consumption is expected to remain weak in 2024, making it a tougher year for discretionary retailers.

The Impact on Smaller Retailers and the Construction Industry

Smaller retailers in the premium audio and custom install market, who owe millions in taxes, are particularly vulnerable. More assertive debt collection by the ATO could push many of these businesses over the edge in 2024. The construction industry has been hit hard, with a significant increase in insolvencies. Retailers are also facing challenges due to cost of living pressure and declining consumer spending behavior.

John Winter, the CEO of the Australian Restructuring Insolvency and Turnaround Association, has indicated that the ATO's leniency in 2023 is over. He predicts a difficult year ahead for businesses, especially those in sectors like construction, e-commerce, and retail, due to the impact of cost-of-living increases and higher interest rates on consumer spending. The concern is that younger consumers are not being exposed to premium audio products due to the focus on entry-level audio by major retailers, which could impact future audio sales.

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