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The Wallet: thunderstruck businesses bracing for next wave as consumers keep hatches battened

Natural and health disasters a backdrop to deeper problems

Watching the rain flood our backyard over the weekend, where less than a week prior we'd been hiding from a 48-degree heatwave, my wife casually observed "it'll be locusts next."

It was funny at the time. We're celebrating today as dams fills and fires that have raged for months have been extinguished - but for many businesses, the flooding resulting from this week's freak east coast weather has been yet another punch in the nose.

As Tourism Australia brings international tourism buyers to fire-affected regions and ASX-listed travel organisations deal with the impact of coronavirus on visitor numbers - albeit in very different ways - the rains provided more grist for the doomsaying mill.

Let's talk about lending

Fact: Australian consumer confidence is in the toilet. We're worried about job security, haven't had a pay rise in a very long time, and for most of us, cost of living is going up. This blog post from Digital Finance Analytics is an excellent summary of the state of play.

Hell, we're even giving up our addiction to having the latest iPhone in favour of cheaper models. Crazy!

What's a governor of the Reserve Bank to do? Dr Lowe is confident Australians will start spending again - but what's less optimism-inspiring is the problems faced by Australian small- and medium-sized businesses trying to access credit.

Karen Maley lays it out in today's Fin: the two million businesses that provide two-thirds of private sector employment in this country are having a devil of a time accessing credit, which is needed to innovate and create new jobs.

At the same time business lending is down, ASIC figures show business payment defaults jumped 29 per cent in 2019. Worst offending industries were healthcare (79 per cent), transport (64 per cent) and real estate (61 per cent).

Recovery may well and truly be the order of the day in residential property, but it's not thanks to investors. This article has a couple of excellent anecdotes from property investors who are staying away right now due to inflated prices and credit roadblocks, meaning the sums no longer add up to property being the guaranteed get-rich-quick approach.

(In fact, the advice from this guy is, now is not the time to be overly-exposed to passive assets like property. Mind you, you don't want to be tied too tightly to term deposits either, if you're looking for solid returns. Those pesky low interest rates are a real kick in the pants.)

Meanwhile, there's clearly money in them thar buy-now-pay-later hills. Flexigroup has launched its own BNPL service, bundll, boasting that consumers can use it for purchases as small as buying a cup of coffee. And Afterpay is fighting moves by the RBA to regulate it as a payment system, saying that what it actually is, is a digital marketing platform for merchants - and that the customer acquisition elements for retailers are more important than the benefits for consumers using the service.

If Afterpay's argument sounds ridiculous, that's because it is. And woe betide anyone who goes to a bank, cap-in-hand, looking for a home loan after using bundll on their daily Starbucks run.

Quarterly results: it ain't all bad in retail

Quarterly reporting season officially kicked off this week, and word on the street is to expect some pretty disappointing results. We've already had one CEO scalp due to poor performance, and it's only Tuesday.

Surprisingly, there are some shining lights in retail right now. Stronger-than-expected December trading helped lift the economy in the December quarter, although the boffins aren't tipping this as the beginning of a sector recovery.

Surely however, the paragon of what it takes to run a successful business in this economy is JB Hi-Fi. It's now worth 20-times earnings thanks to stellar performance over the past year, an insanely low cost-of-doing-business of 15 per cent, and world-class sales per square metre.

Tellingly, JB Hi-Fi is investing $50 million to $60 million back in to the business annually. See previous point about the importance of businesses being able to access credit.

It's pure coincidence that reporting season coincided with the conclusion of the slow car crash that has been celebrity chef George Calombaris' Made Establishment Group restaurant empire collapse. Masterchef fans and social justice aficionados will remember George got done in 2017 for underpaying staff; a flurry of restaurant rebrands wasn't enough to stem the bleeding from customers staying away in protest from Made's 22 companies...he's subsequently selling his Toorak mansion along with other assets to pay the bills.

If the message from all this is anything, maybe you should bring your lunch to work instead for a while. And don't use bundll to buy your coffee.

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