Retail business owners will struggle to sell up in 2008-09

Australian retail business owners will find it harder to sell their business in the year ahead and may be forced to accept lower prices to do so, according to a new PricewaterhouseCoopers report.

In its Retail and Consumer Outlook for 2008, PWC predicts that the combination of the global credit squeeze and tougher consumer conditions will continue to take the heat out of the market for retail business sales.

“Tightening economic conditions have put retail valuations under pressure,” the report states. “Risk premiums have risen because of the discretionary nature of many retail assets and their reliance on consumer confidence.”

A flood of retail businesses on to the market could also hit multiples, according to PWC corporate finance partner Greg Keys.

“We’re expecting up to 100 private equity exits in the first half of 2009 alone,” says Keys. “This could cause some crowding in the market.”

But there are growth opportunities out there for innovative retailers with those that shift to embrace environmental sustainability likely to be positioned particularly strongly.

Not only is environmental sustainability increasingly appealing to customers, PWC argues it will increasingly become important in attracting employees and even shareholders to a business.

According to the PWC report, businesses with social and environmental policies outperformed sharemarket averages by 25% over the past two years.

“Organisations that do not recognise the value of sustainability could be marginalised and suffer competitive disadvantage in the longer term,” the report states.

The pressure Australian retailers are under is also highlighted in a report global report on retail rentals released by Colliers International yesterday.

Shop owners in Brisbane’s Queen Street Mall are paying the average highest rents in the country, according to the Global Rental Survey, with typical rents ranging from typically range from $4000 to $8000 per square metre.

Brisbane ranks 14th in the global ranking of retail rents, just behind Los Angeles’ Rodeo Drive and ahead of the most expensive retail hotspots in cities like Rome and Madrid.

Melbourne and Sydney’s CBD shopping malls were the next most costly Australian retail rental markets at 20th on the list with average rents around the $5000 mark. Perth’s Murray and Hay Street Mall came in next in 36th place, followed by Adelaide’s Rundle Mall at 47th.