Small retail businesses have faced unprecedented challenges due to inflation in recent years.
The inflation rate rose from 3 per cent in September 2021 to 7 per cent in September 2023, according to data from the Australian Bureau of Statistics (ABS) and the Reserve Bank of Australia (RBA).
The Consumer Price Index (CPI) measures prices for goods and services purchased by houses.
The data indicates an increase in inflation leading into 2023.
The Reserve Bank Governor, Michele Bullock, and Treasurer, Jim Chalmers, have agreed that the appropriate target for monetary policy in Australia is to achieve an inflation rate of 2-3 per cent.
This inflation has impacted small retailers by increasing their operational costs and influencing consumer spending behaviours.
According to data from the ABS, the period from 2022-2023 saw a closely matched rate of business entries and closures, with a 16% entry rate and a 14% exit rate.
Michael Boustani, owner of an online streetwear retail business TheNotion, said the trends shown in the data aren’t surprising.
“The amount of exits make sense and directly relates to what the government and people were expecting. For inflation to be targeted hard through interest rates. With continuous rises in the cash rate, businesses slowly crumbled to the lack of business causing many exits.”
Mr Boustani began his business at home in Merrylands in 2020. The business was successful and expanded into a pop-up retail store in Marrickville in December of 2022. In 2023, Mr Boustani decided not to continue pursuing a retail store presence and concentrate on online sales. Mr Boustani said inflation played a significant part in the decision.
“We had a contract in our hand to renew at Marrickville or new in Burwood Westfields. However, with how CPI was growing, and a public perception of harsher interest rates coming.
“We understood that disposable income could crash, something which a business that sells exclusive high-end streetwear relies on,” Mr Boustani said.
In 2023, 11 per cent of businesses in Cumberland were found to have a high risk of business failure within 12 months, according to data from Ilion Australia. The percentage doubles the national average of 4.6 per cent.
Data sourced from Illion Australia
Western and South-Western Sydney comprised 10 out of the 11 riskiest Local Government Areas. Illion’s head of modelling, Barrett Hasseldine, said that everyone should be watching the trends in Western Sydney.
“The whole of Australia should be watching and reading about Western Sydney very closely. Although they are further down the path, our data shows that the risk of business failure is increasing in all capital cities,
“Western Sydney has unfortunately become the national canary in the coal mine, and the canary has started to go quiet,” Mr Hasseldine said.
Cumberland has one of the lowest Index of Relative Social-economic Disadvantage (IRSAD) scores within Sydney at 900 (2021), which suggests they have a higher level of disadvantage, according to the index. This accounts for different factors such as income, occupation, and education. As such, it shows why businesses close compared to those in the Inner West, which is one of the highest at 1057.
The total retail turnover in November 2022 sat at 7.5 per cent and decreased to 0.9 per cent in December 2023, according to data from the ABS. However, COVID has created outliers within the data, resulting in a potential mislead in interpreting underlying trends. Clothing and footwear retailing fell by 0.7% (-$19.5 million).
Ben Dorber, ABS Head of retail statistics, said consumers are cautious of how they are spending their money.
“Underlying retail spending continues to be weak. Since the start of 2024, trend retail turnover has been flat as cautious consumers reduce their discretionary spending,” Mr Dorber said.
Owner of TheWatchly, Ayden Gebran said that the cost of living has affected the way people are spending money.
“I think the cost of living is the largest factor contributing to reduced spending as people simply have less ‘disposable income’. This is across the board with even companies such as McDonald’s seeing major decreases in the past six months.
“However, there are always fluctuations and we’re coming out of a major spending season during the pandemic and the past few years, especially with online retail.”
Mr Gebran established TheWatchly in March 2023 selling luxury watches and watch accessories. He was hoping to pursue a physical store however he found that continuing the business online was safer.
“I would pursue a physical store if the financial model indicated that this would be a good fit for us. Currently it doesn’t seem to be the best move for now. There’s a safety net online since there’s no need to pay rent or wages during ‘dry spells’ when there’s no sales,” Mr Gebran said.
Mr Boustani and Mr Gebrans experience with their small businesses illustrates TheNotion and TheWatchly have had to forgo expansion.
Monthly household spending was 2.1 per cent higher in March 2023 but has slowed since the beginning of 2024, according to data from the ABS. ABS head of business statistics said that the cost-of-living pressures continue.
“Household spending growth was lower in March compared to the annual growth of 3.2 per cent in January and 4.0 per cent in February. Cost of living pressures continue with households focusing on non-discretionary spending, while discretionary spending growth has stalled.”