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Small and medium retailers lose confidence on declining profitability

The economic health of Australia’s small and medium businesses has fallen to the lowest level since 2016, with retailers among those businesses seeing the sharpest drop in profits, according to the latest Westpac-Melbourne Institute SME Index.

Forty per cent of SMEs reported a decline in profits over the past 12 months, and this pressure is expected to continue with two thirds of SMEs forecasting revenue to be unchanged or lower over the next year.

Retailers saw profits decline, despite a modest lift in sales, suggesting they are struggling to adapt to intense competition, new entrants, market disruptors leveraging new technologies, red tape and regulation and energy costs.

“Notably, the SMEs that look to be struggling the most are those that have been in business the longest and those with a higher turnover. This suggests the most established small businesses are finding the changing landscape more challenging,” Westpac senior economist Matthew Hassan said.

Business confidence for the quarter was heavily impacted by a sharp 12 per cent drop in the Current Conditions Index, which outweighed the Future Conditions Index which rose by 4 per cent.

Westpac small business banking general manager Ganesh Chandrasekkar said many businesses are looking to expand their operations, despite the challenging conditions, which is good news for jobs and the economy.

“We are hearing from our customers that they are finding current conditions tough. But despite this, over a quarter of small businesses are planning to expand their operations including enhancing their products and services and breaking into new markets,” he said.

“This is really positive and there needs to be more support from government, industry and big businesses to help the ambitions of small business owners.”

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