• Jobs & Services Australia

Business collapses to accelerate as coronavirus crisis drags on, experts warn

As Governments around the world start to open up their economies, with hopefully the worst of COVID-19 behind them, for the business community it is a different story.


Key points:

  • Virgin Australia, Tigerlily, Aussie Disposals and Sydney's Carriageworks have all called in administrators since the COVID-19 shutdown

  • Experts warn many more businesses will collapse when JobKeeper is withdrawn in late September

  • Analysts say retail is the most vulnerable sector, having already seen numerous collapses prior to the pandemic

The worst could be yet to come, as months with little or no revenue take their toll.

For example, Nicole Manns was the proprietor of a thriving video production house in Brisbane until Hollywood superstar Tom Hanks got COVID-19 while filming on the Gold Coast.


"We probably would have had another four or six weeks I think in the film industry before it started impacting us, but it became such a headline that I think a lot of productions had to take immediate action," Ms Manns told the ABC.


With 90 per cent of her business gone and her staff laid off, Nicole Manns is hanging on by the skin of her teeth.


"Provided we can just get through that next six to 12-month period, ideally with the support of the banks, then there will be light on the other side of this," she said.

Many businesses have already fallen over


Others have not made it, with the highest-profile COVID-19 corporate casualty so far being the world's biggest car rental company, Hertz.


Global car rental giant Hertz has filed for bankruptcy protection in the US.(Reuters: Regis Duvignau)


It is in bankruptcy protection less than 18 months after a very public ceremonial ringing of the closing bell at the New York Stock Exchange to celebrate what it then thought was a bright future.


A big debt load combined with a huge drop in travellers tipped Hertz over the edge.


The same issues pushed Australia's highest-profile coronavirus victim so far, Virgin Australia, into administration.


In whatever form Virgin reappears, the world has changed, for both it and Qantas.


"If business travellers only come back very slowly and never get back to their previous levels of travelling because they are doing more online communication, then that's going to have a big long-term impact on airlines," AMP Capital chief economist Shane Oliver explained.


The reason: business travellers are airlines' most profitable customers.


Others to go down so far in Australia include Sydney-based function centreCarriageworksas well as retailersTigerlilyand Aussie Disposals.


Retail bearing the business brunt of COVID-19


And it is in retail where the impact of COVID-19 may be most keenly felt.

The last few years has seen a procession of collapses among mid-market fashion and apparel stores unable to withstand competition from overseas and online competitors. And that was well before any pandemic.


Corporate casualties in 2020 pre-COVID-19:

  • Jeanswest — since bought out from administration

  • Kikki.K — entered administration in mid-March

  • Colette by Colette Hayman — entered administration in February, closed 33 stores

  • Holden — US parent GM pulled the pin on the Australian brand in February

  • Curious Planet — administrators announced in January the renamed Australian Geographic stores would close

  • McWilliam's Wines — entered administration in January

  • Harris Scarfe — announced store closures after calling in administrators in late 2019

  • Bardot — announced 58 stores would close after company went into administration in late-2019

Retail expert, Louise Grimmer from the School of Marketing at the University of Tasmania, believes the damage from COVID-19 will make it even tougher for some others to survive.

Stores to close as shoppers move online

"Brands like Cotton On, Just Jeans, Jay Jays — even some of the female fashion brands, Sussan and Katies — there's really just not enough room for all those brands in the market," Dr Grimmer said.


She also believes COVID-19 will hasten the downward spiral of Myer and David Jones, but thinks Target may be the first department store to go.


"I was just surprised that Wesfarmers have announced that they are going to continue, I guess, limping along the Target brand when really perhaps the better decision to have made would be to close the brand completely," she said in reference to last week's announcement the number of Target stores would be slashed.


Businesses brace for 'tough time' later this year


But as COVID-19 exacerbates the struggles of large parts of the retail sector, there are other parts of the economy, which employ hundreds of thousands of people, that will also find life tough in a post-pandemic world.


"Tourism will take a long time to fully recover," Dr Oliver predicted.


"Housing construction is another area I think is in for a pretty tough time because we don't have immigrants coming to Australia."


Between them, tourism and housing represent 9 per cent of GDP, the nation's annual economic output, or about $170 billion.

What businesses like Empire Post are focused on now though, and worried about, is September.

That is when JobKeeper, and the moratoriums on loan repayments to banks and evictions by landlords, are all scheduled to end.

What happens when the stimulus stops?

"All of them coming to a halt at the same time is just going to be like the entire economy hitting a wall," Empire Post owner Nicole Manns said.

Dr Grimmer agrees, saying it could spell the end for many companies.

"There are what I call zombie businesses out there who are only surviving at the moment because they are being propped up by government help," she warned.


"In September we'll see who the winners are and who are the losers."


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Originally published: https://www.abc.net.au

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