Retail wreckage: Business numbers fall as consumer spending slows

(Source: Bigstock)

The retail sector shed more businesses on a net basis than any other industry sector last year, exposing a harsh environment for established traders and fresh entrepreneurs alike.

The Australian Bureau of Statistics (ABS) released its count of business entries and exits for the 2022-2023 financial year on Tuesday, revealing the formation of 406,365 businesses, or 66,000 fewer than in 2021-2022.

Some 386,392 businesses exited the economy last financial year, either through cancelling their ABN, failing to report GST for an extended period, or through acquisition by a larger entity.

That resulted in net new business generation of 19,973 — down from the net growth of 167,646 tallied in 2021-2022, and far below the levels registered between 2019 and 2021, when Covid-19 lockdowns ravaged the economy.

Retail trade was particularly hard-hit, the data shows.

The sector saw a net decline of 2211 businesses last financial year, a greater nominal loss than any other industry category. The downturn equates to a 1.4 per cent loss over the year.

By comparison, the number of retail businesses grew by 7.1 per cent in 2021-2022, outlining the post-lockdown boom in consumer spending.

Only administrative and support businesses registered a deeper downturn last financial year, losing 1.6 per cent of businesses.

The sharp downturn in retail traders reflects the brutal economic climate faced by entrepreneurs over a year dominated by inflation, soaring interest rates, labour market shortages and souring consumer sentiment.

The ABS last month revealed retail turnover dropped 0.5 per cent in the June quarter, marking the second consecutive quarterly dip and all but confirming a ‘retail recession’.

Construction, another industry dominated by small businesses and susceptible to broad economic pressure, also recorded a 0.1 per cent dip over the financial year.

That is compared to a strong 8.1 per cent increase in 2021-2022, as contractors and small firms tackled the mountain of new projects launched through the pandemic.

The data also suggests the number of ‘micro businesses’ with between one and four employees took a significant hit.

The number of businesses in that size range decreased by 3.5 per cent over the financial year, a nominal loss of 25,292 businesses, while enterprises in every other size category grew in number.

Beyond those which simply shut up shop, the data shows a 2.3 per cent growth in non-employing businesses and a 1.8 per cent growth in businesses with between five and 19 employees.

The spread suggests some microbusinesses successfully hired an extra staff member and graduated to the next size bracket.

However, the ABS reports a net movement of 35,509 surviving businesses from employing to non-employing, showing many hard-hit businesses pared back their operations by shedding staff.

This story was originally published on Smart Company.

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