The latest victim of the aftershock

Sometimes recessions have echoes and aftershocks felt some time after the initial shock. Almost all of these aftershocks are caused by an unforseen and compounding affect that was the last blow to a weak but improving business, the straw that broke the camel’s back.

In Australian retailing, our aftershock has been the swift and significant rise in interest rates over the past 12 months. I’ve blogged before on my belief that they are unwarranted. I’ve used the phrase that they are a ‘wet blanket thrown across the whole economy to dampen demand’, when the shortage of land for development has been the cause of increased house prices. However, they are here now so we must deal with them, and the strong will do just that.

The weak, however cannot. I wrote back in January of 2009 that Clive Peeters may or may not make it through the year. The team hunkered down and spoke to many suitors while it tried to dig its way out of a hole, assisted by the Government’s stimulus package. But this week, with its short-term debt in need of renewing this July and carrying $160 million in debt and with only $10 million left in cash, the board made the call to NAB, at $38 million their largest creditor.

Not to be confused, the retailer had its share of bad luck with an employee allegedly stealing $19 million, but that’s old news. It has also lost $4.5 million in the first three months of this year, but that doesn’t make it Robinson Crusoe… many discretionary spend retailers lose money in the first three months of each calendar year.

No, the new news is that trading conditions will weaken in retail due to the five interest rate hikes and this ‘aftershock’ will take them out. If rates hadn’t been increased, and shoppers weren’t losing more of their spending money on mortgage repayments, perhaps Clive Peeters could’ve made it.

For the shareholders, sorry no joy. I had the same with ABC Childcare Centres. Write it off and move on.

For the employees and suppliers? Well, in the next several days a major retailer, most likely JB Hi-Fi, will pick up the store network, as it has considerable value to JB Hi-Fi. Again, our zone and planning laws are so strict it would take JB Hi-Fi years to secure this good a selection of sites. There will be overlap, but JB can be a landlord where the sites are side by side, or increase space in a single postcode with dual locations selling a slightly different range, something that’s happening a lot in the US.

Where there is change there is opportunity.

In his role as CEO of CROSSMARK, Kevin Moore looks at the world of retailing from grocery to pharmacy, bottle shops to car dealers, corner store to department stores. In this insightful blog, Kevin covers retail news, ideas, companies and emerging opportunities in Australia, NZ, the US and Europe. His international career in sales and marketing has seen him responsible for business in over 40 countries, which has earned him grey hair and a wealth of expertise in international retailers and brands. CROSSMARK Asia Pacific is Australasia’s largest provider of retail marketing services, consulting to and servicing some of Australasia’s biggest retailers and manufacturers.