Understanding the retail downturn

Many businesses rely on strong holiday trading to help offset slower periods. But high interest rates, stubborn inflation, and shrinking family budgets have combined to create a perfect storm. As the festive season approaches, worsening conditions will further stretch businesses.

Trading conditions aside, businesses may need insurance cover to trade. And the rising cost of premiums will only add to their problems. This is where premium funding can be necessary.

Our CFO Beau Goodyear, CA, explains how premium funding can help retail business with insurance costs and ease cash flow pressures.

The retail industry is like a thermometer for our economic health, and right now, it's showing a fever. Several factors are heating up the challenge for retailers as they find ways to stay afloat.

First, businesses are dealing with higher interest rates and inflation. What does this mean for a retailer? As interest rates go up, it costs more to finance operations, stock up on goods, and keep cash flowing. At the same time, inflation has been eating away at consumers’ disposable incomes. This means fewer sales and less money for retailers.

Families are feeling the financial squeeze too. With everyday expenses piling up, they have less money to spend. And when people cut back on spending, retailers are typically the first to take a hit.

The holiday season is usually a big moneymaker for retailers. But this year competition is fierce. High demand and tight family budgets mean everyone is fighting for the same dollars. To make it through Christmas, retailers must play it smart.

Here's another concern – people are dipping into their savings to manage their bills and debts. In the June quarter, $6 billion in savings evaporated (Australian Financial Review, September 2023). The last time that happened was 16 years ago, during the Global Financial Crisis. Aussies are using savings to offset cost of living and borrowing pressures. This is a band-aid solution. Changes in non-essential spending habits are inevitable.

When cash flow is tight, premium funding can help retail businesses manage insurance costs by spreading the payments over the coverage period. It's a way to manage insurance bills without wiping out savings or diverting money from vital operations. Compromising on insurance can often be a false saving for retail businesses. Underinsurance can be much more costly than paying for the appropriate cover.

Let's look at the advantages of premium funding for businesses caught up in the retail storm:

1. Maintaining working capital buffers
   Premium funding is a shield for working capital. It reduces the upfront cost of insurance into monthly payments. That means retail businesses can keep their cash handy for everyday operations, investments, and growth plans.
2. Smoother cash flow
   No more stressing about a large lump-sum payment. Premium funding helps retail businesses manage their financial obligations without the headache. By splitting insurance costs into smaller, monthly payments, businesses can streamline cash flow projections.
3. Risk management
   In uncertain times, managing financial risks is essential. Insurance is a key part of risk management. Premium funding makes sure retail businesses can maintain their coverage without making cuts elsewhere.
4. Keep savings for essentials
   With the threat of a credit crunch, retail businesses must avoid using savings to pay for insurance. Premium funding acts as a financial safety net, so they can keep their savings for other essential needs.
5. Flexibility and tailored plans
   Premium funding isn’t one-size-fits-all. It's flexible and allows customisation to fit unique policy situations, cash flow, and financial goals.
6. Competitive edge
   In retail, access to premium funding is like having an extra gear. It lets retail businesses invest where it matters most – marketing, inventory, and providing the best customer experience.
7. Reputation and trust
   Premium funding is a reputable lending option backed by an industry code of practice. Brokers can trust accredited premium funders as a proven way to provide extra working capital to their clients. It guarantees customer service and support when they need it most.

Businesses need to find creative ways to manage their finances. The retail environment is shrinking, with rising costs, inflation, and dwindling savings. Premium funding is that creative solution. It helps retail businesses secure the crucial insurance coverage they need. All without blowing their working capital, cash flow, or financial stability. 

Talk to your clients about paying their insurance in manageable monthly instalments. You can help them navigate the challenging retail environment, especially this year-end, by recommending an accredited premium funder. This can allow them to focus on core operations, safeguard their savings, and remain competitive.

The information contained within this article is of a general nature. While all reasonable care has been taken, Hunter Premium Funding accepts no responsibility for any loss, expense, or liability which you may incur from using or relying on this information.