More retailers to collapse says Gerry Harvey

Many retailers expected to go bust next year

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More retailers are expected to go bust next year, says Harvey Norman Holdings (ASX: HVN) boss, Gerry Harvey.

Just last month, discount chain operator, Retail Adventures collapsed and announced the closure of 32 stores and the loss of over 600 jobs. Mr Harvey also warned that despite a surge in failures over the last two years, there were plenty more to come. He said that plenty of retailers had approached him to take a stake in their businesses or take them over, and many would hang on for the Christmas period, but know that the first half of next year is likely to be very difficult.

Related: Interest rate cuts not helping retailers

Harvey Norman’s strategy was to be the last man standing, backed by its $2 billion property portfolio. Mr Harvey said he was looking forward to Christmas, with sales expected to be up on last year, if the warm weather holds. Harvey Norman usually sells many air conditioners over the Christmas period, and Mr Harvey said he was hoping for a really hot period across Australia.

Perhaps the main peg that retailers will be hanging their hopes on is for the Reserve Bank of Australia (RBA) to cut interest rates further, either in December or early next year – preferably with at least one cut.

Furniture retailer Nick Scali Limited (ASX: NCK) reported in October that it had seen sales orders up in the first quarter of the 2013 financial year, but below the company’s expectations. Managing director, Anthony Scali said he was hopeful of seeing more positive signs from the economy and consumers. Mr Scali said that despite the conditions, the company would continue to open new stores.

Fantastic Holdings (ASX: FAN), owner of Fantastic Furniture stores, also said that it believed that the retail outlook was gradually improving, but the retailer remained cautious, echoing recent comments by Speciality Fashion Group (ASX: SFH).

The Foolish bottom line

Gerry Harvey may be pessimistic about the retail outlook, but he may be right – with 50 years of retailing experience behind him, he should know better than most. Retailers will be hoping the RBA comes to the party with more rate cuts, to further encourage consumers to start shopping, otherwise Gerry’s prediction could well come true.

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Motley Fool writer/analyst Mike King doesn’t own shares in any companies mentioned. The Motley Fool’s purpose is to help the world invest, better. Take Stock is The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. Click here now to request your free subscription, whilst it’s still available. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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