High mortgages having repercussions for the Australian retail sector

The $1.6 trillion mortgage debt is having a negative effect on the Australian retail sector, according to trade credit insurance provider, Atradius.

Mark Hoppe, ANZ managing director, Atradius, said, “22% of households are in mortgage stress and this is really being felt by the retail sector. (1) Because people tend to have such high mortgages, they’re less inclined to spend money on retail items they don’t need, such as clothes, furniture, and other luxury things.

“Australia is third in the world behind Japan and Europe in terms of debt. The difference is Japan and Europe have sovereign debt, whereas Australia has private debt. This indicates the majority of Australia’s debt is tied up in mortgages.

“The fact banks keep issuing more and more high mortgages is having a knock-on effect for the retail and consumer durables industry. Interest rates are low at the moment but, if that changes, people will become even more conscious about excess spend.”

According to Atradius, the appliance industry has also seen a downturn with businesses like Dick Smith feeling the crunch. The fashion industry has also suffered, with David Lawrence and Marcs going into voluntary administration earlier this year.

It’s therefore important for retail organisations to recognise that Australian’s have high mortgages and that this can affect their disposable income, reducing the amount spent with retailers.

Mark Hoppe said, “Tough times could be ahead for retailers and their suppliers. These organisations should get ahead of the curve now so they can avoid going out of business due to bad debt. Securing their cash flow, with a strategy like credit insurance, means suppliers can innovate to stay ahead of the competition and remain viable even as the market tightens.”