After analysing the financial health of retailers with more than 4000 stores, Macquarie says "profitability for apparel retailers remaining challenging", particularly for unlisted companies, as retail sales moderate and the lower Australian dollar raises import prices.
"Given the challenging retailer environment, we expect further retailers to enter into administration after the December peak trading period (i.e. in the first quarter of 2017)," the broker told clients.
Macquarie said several unlisted retailers with about 500 stores between them were unprofitable. These were RSH Australia, which owns jeans brand Westco and shoes brand Novo; Fast Future Brands, which owns clothing brands Valley Girl and TEMT; and Pepkor (SE Asia), which owns discount department stores Harris Scarfe and Best & Less.
"We believe the possibility of further administrations from underperforming chains remains a risk for the [listed property] sector," the broker said.
"As a result of declining profitability, a number of the retailers, particularly the unlisted apparel retailers, have begun closing less profitable stores.
"Indeed, we expect [clothing brand] Esprit, [clothing brand] Jeanswest (194 stores), RSH (135 stores) and Pretty Girl (about 382 stores) have been net closers of stores …"
John Winter, chief executive of the insolvency industry body Australian Restructuring Insolvency and Turnaround Association, said the "general feeling is that we expect to see an increase in retail insolvencies early in the new year.
"It appears that an increasing number of retailers are coming under financial pressure.The current level of retail discounting in a period where retailers tend to try to maximise their margins is indicative of this.
"Most will endeavour to trade through Christmas, though, and any traditional post-Christmas sales to move their stock, so January and February will be telling. The number of recent retailers who did not even make it to the Christmas period shows that the sector is coming under real pressure."
The Macquarie report said while two major listed rag traders have struggled in recent years – Noni B, and Specialty Fashion, the owner of Katies and Rivers brands – big unlisted companies have generally fared worse.
ARJ Group Holdings, which owns womenswear brands Sussan, Sportsgirl and Suzanne Grae and is led by Rich Lister Naomi Milgrom, likely closed some stores, Macquarie said.
Retail Apparel Group, which owns menswear brands y.d., Tarocash and Connor, has seen its profitability gradually decline since the 2011 financial year, it said.
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