Australia / Coronavirus Insights
SME Industries to Rebound in 2020-21

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by IBISWorld
Aug 12 2020

IBISWorld’s small-to-medium enterprise (SME) Industry Reports provide accurate industry data and analysis that focus on operators with less than $10m revenue. Amid the ongoing disruption of the COVID-19 pandemic, IBISWorld has analysed five SME industries set to outperform the wider economy in 2020-21, including:

  • Scenic and Sightseeing Transport
  • Clothing Retailing
  • Restaurants
  • Funeral Directors, Crematoria and Cemeteries
  • and Child Care Services

While these SME industries are expected to grow strongly, this outcome is primarily attributable to a partial recovery from the unprecedented disruption caused by the pandemic in 2019-20. For many of these industries, SMEs will take up to five years to return to the performance highs reported just before the emergence of COVID-19.

The COVID-19 pandemic has been particularly damaging for SMEs, which typically lack the cash reserves necessary to survive extended periods without turnover. The loss of revenue has particularly affected for operators in the Tourism industry, as well as hospitality operators in the Restaurants and Cafes and Coffee Shops industries. While larger firms have been able to rely on accumulated cash reserves or access to credit, smaller firms have relied on government support measures.

In addition to the JobKeeper wage subsidy scheme, the Federal Government has provided up to $100,000 to SMEs through the Boosting Cash Flow for Employers scheme, which is intended to help SMEs retain employees. The Federal Government has also guaranteed half the value of $40.0 billion in loans to SMEs, reducing risks for lenders. This support has enabled SMEs to borrow up to $250,000 for a period of three years at a lower interest rate, assisting these businesses to remain viable until economic conditions normalise. To reduce insolvency risk for SMEs, the Federal Government has also temporarily increased the minimum threshold for creditors issuing a statutory demand on a company from $2,000 to $20,000.

Scenic and Sightseeing Transport

In 2020-21, SMEs in the Scenic and Sightseeing Transport industry are expected to partially recover from the COVID-19 recession. SME revenue is expected to increase by 16.4% in 2020-21, to $793.3 million. This result represents a significant decline relative to the revenue peak of $935.9 million in 2018-19. Although revenue is expected to partially recover, SMEs are unlikely to significantly ramp up employment in the current year. Operators are expected to operate with minimal staff in an effort to retain workforce flexibility amid uncertain economic conditions.

International borders are expected to remain closed through to 2021-22, limiting the recovery of SMEs operating in the tourism sector. However, domestic tourism is expected to rebound as state border restrictions are eased throughout 2020-21. States are anticipated to permit tourist movement between Australian states and territories in the second half of 2020-21, once the second wave of COVID-19 in Victoria has been contained. While weak consumer sentiment and a decline in real household discretionary income are expected to limit Australian tourism expenditure, greater domestic tourism revenue from Australians who would otherwise be traveling overseas is anticipated to offset this trend.

SMEs in the Scenic and Sightseeing Transport industry are expected to gradually recover over the next five years. Revenue is projected to increase at an annualised 4.0% over the five years through 2025-26, to $964.3 million. The SME industry's recovery is forecast to occur slowly over the period, with revenue only recovering to 2018-19 levels in 2025-26.

Clothing Retailing

SME companies make up a significant share of the Clothing Retailing industry. Over 95% of all businesses included in the industry are classed as an SME business. The average annual revenue generated by an SME player is typically close to $600,000. However, this amount is expected to have fallen to $440,000 in 2019-20, due to reduced consumer expenditure as a result of the COVID-19 pandemic. SME revenue declined by 28.3% in 2019-20, to $4.6 billion. Many SME clothing retailers have moved to online sales platforms to maintain turnover amid restrictions on business operations. However, this has been insufficient to preserve viability for many operators, leading to an 8.7% decline in SME clothing retailers in 2019-20.

In 2020-21, SME revenue is expected to recover by 17.6%, to $5.4 billion. Consumer expenditure is anticipated to increase as restrictions on non-essential travel are lifted. However, consumer spending is likely to increase slowly, as households are expected to increase their savings rate amid heightened economic uncertainty. The number of SME clothing retailers is expected to only partially recover by 4.1% in 2020-21. Many operators are unlikely to return to the industry, as they are unable to compete with the economies of scale enjoyed by larger players, or the cheaper operating costs of online-only stores. Overall, SME industry revenue is forecast to increase at an annualised 2.2% over the five years through 2025-26, to total $6.0 billion.

Restaurants

Over 99% of enterprises in the Restaurants industry are SMEs. However, these small players only account for 73.1% of overall industry revenue. The average annual revenue generated by an SME restaurant was $530,000 in 2019-20. SME industry enterprise numbers fell by 9.5% in 2019-20, due to restrictions associated with the COVID-19 outbreak. The number of enterprises is expected to only partially recover in 2020-21. Industry SMEs were unable to remain open for on-premise dining from late March 2020 until late May or early June, depending on the state or territory. In Victoria, restaurants have remained closed for on-premise dining and are only expected to reopen in October.

SME restaurant revenue is forecast to increase at annualised 1.3% over the five years through 2025-26, to total $13.4 billion. The industry is projected to gradually recover from the downturn associated with COVID-19, as state and territory governments continue to wind back social distancing restrictions. However, a lack of international tourism and increased risk averseness among domestic consumers will likely hinder growth. SME revenue is only expected to surpass the peak of 2018-19 in 2024-25.

Funeral Directors, Crematoria and Cemeteries

The COVID-19 outbreak has significantly disrupted SMEs in the industry. Although the outbreak has led to the death of over 330 Australians as at August 2020, the secondary effects of social distancing have had a much larger impact on SME funeral service providers. Social distancing has kept a greater number of people in their homes, leading to fewer workplace accidents and a lower road toll. Social distancing measures, greater awareness of vaccinations and personal hygiene practices have significantly lowered the spread of influenza in 2020, commonly known as the flu, which kills between 1,500 and 3,000 in Australia annually. As a result, the number of deaths has fallen, subsequently hindering demand for SME funeral services. In addition, social distancing restrictions have limited funeral attendance, exerting further downward pressure on funeral expenditure. Overall, SME revenue declined by 22.3% in 2019-20, to $808.8 million.

In 2020-21, SME revenue is expected to partially recover in line with a resumption of normal economic activity. However, weak consumer sentiment and a deterioration of household disposable income are forecast to continue exerting downward pressure on the funeral expenses that consumers are able to afford. SME profit fell from 17.3% in 2018-19 to 11.1% in 2019-20, but is anticipated to recover to 14.3% in 2020-21. SME revenue is expected to increase at an annualised 3.7% over the five years through 2025-26, to $970.7 million.

Child Care Services

SME child care centres commonly operate in smaller markets, such as rural areas, as these are often not a high-value investment for larger operators. Close to one-third of SMEs generate revenue of less than $200,000 per year, and two-thirds generate revenue of less than $2 million per year.

The outbreak of COVID-19 has posed a significant risk to child care operators, with many SMEs contending with a rapid and dramatic fall in attendance and enrolments. While SMEs were supported by significant financial subsidies offered by federal and state governments, overall SME revenue declined by 6.4% in 2019-20, to $10.6 billion. Child care enrolment rates are expected to partially recover in the latter half of 2020-21, once COVID-19 restrictions are eased and the threat of the virus substantially declines. As a result, SME revenue is expected to recover by 4.1%, to $11.0 billion in the current year.

In the immediate future, SMEs will be confronted with several challenges during the post-COVID recovery period. The entrance of new players over the past five years has led to an oversupply of childcare centre capacity in the outer suburbs of Melbourne and Sydney, leading to falling occupancy rates and rising price competition. As a result of the COVID-19 outbreak, many SMEs anticipate lower demand and have adapted by reducing child care capacity, with a subsequent reduction in staff numbers. As a result, the number of SME employees is expected to remain below the highs reported in 2018-19 until 2022-23. An additional challenge for child care operators is the decline in household discretionary income and female labour force participation rates in 2020-21, which is expected to result in more parents reducing their use of child care over the next five years. Overall, SME revenue is forecast to grow at an annualised 3.9% over the five years through 2024-25, to $12.9 billion.

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IBISWorld reports used to develop this release:

For more information, to obtain industry reports, or arrange an interview with an analyst, please contact:
Jason Aravanis
Strategic Media Advisor – IBISWorld Pty Ltd
Tel: 03 9906 3647
Email: mediarelations@ibisworld.com