Restructuring - Australian Retail & Hospitality Series - Part 1: Facing the Squeeze - Trading Challenges for Retail and Hospitality businesses

The retail and hospitality sector in Australia remains relatively steady in terms of financial performance. However, retailers, including those in hospitality, continue to be faced with some persistent headwinds and difficult trading conditions. In our three (3) part series, we cover some of the challenges facing Australian businesses in the sector, including those exposed to external administrations, the strategies that are working via administration, and how early intervention and turnaround strategies can help preserve long term enterprise value for stakeholders. 

Facing the squeeze – Trading Challenges for Retail and Hospitality Businesses 

Retailers and restaurant chains in Australia continue to grapple with high input costs and soft consumer demand. Some consumers are cutting back, especially on discretionary spending. Hospitality related business closures are still high as food, energy, wage and rent costs remain difficult to manage mid to long term. Many metropolitan based retail businesses have lost urban foot traffic as hybrid work tendencies persist and A-grade CBD premises continue to hold unoccupied retail premises. Businesses must also negotiate with landlords, banks, and suppliers for more flexible terms or forbearance. Entering voluntary administration (VA) offers breathing room – but not all businesses come out the other side. In fact, the majority fail. 

Here’s what’s keeping retail and hospitality businesses and their appointed administrators up at night from our perspective. 

Rising Costs and Weak Spending

Retail and hospitality operators are caught between weak top-line sales and rising operating costs. Inflation has eased, but input costs remain high. Retail margins are under pressure as consumers look for value – shifting from discretionary fashion and department stores into essentials and groceries. In hospitality, wage increases (particularly under the Fair Work Commission’s recent decisions) and energy bills have pushed many restaurants to the brink. Insolvency statistics continue to show retail and hospitality related collapses to be significant. 

Franchise Complexity and Stakeholder Alignment

Many consumer-facing businesses operate under franchise or license models, adding layers of complexity to any restructuring. When Carl’s Jr’s Australian licensee (Burgers of Tomorrow Pty Ltd) entered administration in May 2024, it only controlled 24 of 44 stores. Franchisees continued trading – creating brand confusion, inconsistent customer experience, and challenges for the administrators.

Administrators also face pressure from landlords, suppliers and employees – all with competing interests. Retail landlords may prefer liquidation (to re-lease prime space at higher rents), while employees want continuity and suppliers demand improved trade terms. Getting these stakeholders aligned – quickly – is one of the hardest parts of a retail administration.

High-Profile Failures Are Growing

Recent administrations highlight the mounting distress in the consumer sector include:

• Mosaic Brands (Noni B, Katies, Rivers) entered VA in March 2024 despite closing underperforming labels pre-appointment.
• Marquee Retail Group (Colette by Colette Hayman, The Daily Edited) appointed administrators in late 2023 but kept all 60 stores trading during sale efforts.
• Dion Lee, the designer label once seen as a global fashion export, collapsed in March 2024 after funding fell through.

These collapses show that even high-profile or previously profitable brands are vulnerable – especially when debt, rent or investor support pressures mount. 

The Likely Outlook

Administrators expect a steady flow of mid-sized retail and hospitality appointments to continue in 2025. For those acting early, creative solutions exist (see Part 2 coming up). But with the sector under strain, even those appointments that preserve operations often involve hard decisions: store closures, job losses, and fast-tracked sales. That said, there is always going to be some value to be preserved and realised and so, acquisition opportunities may also present themselves to buyers who have strong balance sheets and are capable of integrating new businesses into their groups.