Home' Charter : 0811 Charter Aug Contents 42 Charter I August 2011
Opinion > Enterprise
Traditional businesses are losing traction in
today’s economy. Banks need to recognise
traditional lending has also lost its usefulness.
Sue Prestney FCA
We hear a lot about the Australian two-
speed economy, with mining-related
businesses in the fast lane and the rest of
the business world labouring behind. But
underlying this it is becoming apparent that
some fundamental shifts are occurring in the
structure of our economy, with significant
implications for SMEs.
This is evidenced by the ANZ Bank’s
economic report for May 2011 showing that
while sales growth over the previous 12 months
for businesses with annual turnovers of under
$5 million averaged 3.1 per cent, retail-related
businesses had growth of just 0.2 per cent and
non-retail and services businesses had growth
of 5 per cent. The highest sales growth (11.6 per
cent) was in business services (eg accountants,
legal, office supplies) while sales for trades
(eg construction materials, tradespeople,
landscaping) was up by 8.5 per cent, followed
closely by restaurants with 7.9 per cent. Retail
sales for clothing and homewares actually fell,
although not as dramatically as in 2010.
While it seems that consumers are
increasingly opting to allocate their
discretionary spending on dining out rather
than buying goods, online retail is, no doubt,
also playing a part in the decline in the retail
sector. Spurred by the strong Australian dollar,
consumers are rejecting the prices charged
by traditional retailers in favour of overseas
online suppliers with lower overheads and, for
goods less than $1000, no GST.
A survey conducted in March this year by
the Australia Institute found that consumers
saved between 50 per cent and 75 per
cent on many items by purchasing from
online overseas stores. The same survey
found that 85 per cent of respondents shop
online to save money, 54 per cent to save
time, around a third to avoid travel and
shopping centres and 23 per cent to avoid
salespeople. The main items bought online
are DVDs and music, books, electrical and
electronic goods, clothes and shoes.
Traditional book and music retailers have
had to contend not only with virtual shopping
but also with e-products.
The Productivity Commission is currently
conducting an enquiry into the structure
and performance of the Australian retail
industry, including the issues contributing
to the increase in online purchasing and
the appropriateness of the current GST
It certainly looks as though the outlook
for traditional retailers, particularly of those
products favoured by online shoppers, is
far from rosy. It is almost impossible for
bricks-and-mortar retailers to compete on
price when they have to bear much higher
overheads, particularly with high retail rents.
And, apart from lowest price, other major
attractions of online shopping – saving time
and avoiding shopping centres – also have
to be recognised as meeting the needs of a
significant population of consumers.
Currently online spending is a small
proportion of total retail spending but it is
increasing quickly. While the strong dollar is
contributing to the increase in offshore online
purchasing, there is no doubt that the trend
is away from bricks-and-mortar retail, with
domestic retailers establishing their own
online stores to compete. A report released by
Southern Cross Equities found that Australian
online retailers doubled their market share to
4 per cent between 2005 and 2010.
Not only are we seeing the trend away
from traditional retailing but other traditional
industry sectors, particularly manufacturing,
are also in decline as a result of international
These fundamental shifts are reflected
in the ANZ Bank’s report that the small
businesses with the highest rate of growth
are in service industries. Increasingly we
are seeing an SME sector composed of
businesses with minimal inventory and low
investment in equipment and premises.
Someone buying a typical business
today will be more likely to pay for domain
names, websites, trademarks, copyrights
and goodwill than real estate, inventory and
In contrast we have a banking sector that,
since the global financial crisis, has moved
away from cash flow lending, back to
requiring hard assets, preferably real estate,
to secure lending to the SME market.
The move by businesses away from hard
assets was recognised years ago and, as a
result, invoice financing became a mainstream
offering by the retail banks. It helped many
businesses grow that would otherwise have
struggled to find funding. Indeed many
successful businesses owners acknowledge
that invoice financing in their early years gave
them their kick-start. However, since the GFC
there has been a reduction in available invoice
financing facilities from the major banks – just
at the time when they are most needed – and
banks have reverted to traditional security
These security requirements are not
compatible with the changing profile of the SME
sector. It is no wonder that banks are finding
it difficult to lend and businesses are finding
it difficult to borrow. The product the banks
want to sell just doesn’t fit the new market.
The end result is that everyone is marking time
and business activity is stifled from lack of
funding. It’s like trying to sell size 8 dresses to a
population of size 16 women. No matter how
good the marketing is, they just won’t fit.
Traditional lending practices suit traditional
businesses. The fast lane aside, our
economy is moving away from traditional
businesses and, if this new economy is to
thrive, we have to have a finance sector that
is willing to adapt to it.
Sue Prestney FCA is from MGI Melbourne and is
the Institute’s spokesperson on SMEs.
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