AFP
Business insolvencies in Australia saw a 40% increase compared to pre-pandemic times, as many brands have been forced to halt operations or shut down completely in the face of rising costs.
According to a recent CreditorWatch survey, Australian businesses failed at a rate of 5.04%, the highest since October 2020 — which indicated a notable increase compared to the average failure rate of 3.97% in October 2023.
The food and beverage sector saw the most failures in October, with a failure rate of 8.5%, compared to the 8.3% in the preceding 12 months, News.com.au reported.
The recession has hit Australia’s construction industry hard, with 2,832 companies sliding into insolvency in the 2023-24 financial year, according to ASIC data.
One can take for example Quasar Construction, which had to shut down earlier this year, plunging its creditors into a AU$60 million debt.
A handful of projects in NSW, including a Bunnings store, a AU$50 million shopping center, and parts of the new Western Sydney Airport suffered collateral damage by the company’s demise.
The retail sector too bore the brunt of the unprecedented inflation. The international brand Dion Lee faced a tragic collapse despite scoring the massive project of dressing Taylor Swift for the Super Bowl.
CreditorWatch chief economist Ivan Colhoun told News.com.au that both businesses and their patrons faced a bleak future since the pandemic times and both had to cut costs to stay afloat during the difficult situation.
“Together with some greater caution in discretionary spending and softness in interest rate sensitive sectors of the economy, this unsurprisingly has led to higher voluntary business closures and some rise in insolvencies,” Colhoun said.
“We’re yet to see the extent to which the 1 July tax cuts now flowing through the economy will ease some of the pressures on consumers and businesses.”
Gary Mortimer, a marketing professor at Queensland University of Technology, said high-end fashion brands face significant competition due to their relatively small market presence, which erodes their competitive spirit to contend with big brands like Burberry and Chanel.
“When you think about the likes of Chanel, even if their fashion business isn’t doing so well, they can certainly draw business from other revenue like make-up and cosmetics,” Mortimer said.
“Big brands like Louis Vuitton, Moet, and Hennessy have very differential business models, so if one element of the model or one element of the business isn’t working so well, they pull money from other businesses. Dion Lee wasn’t able to do that.”
