A channel check: what's happening to Australia's retail sector?

“…and then in October, it all suddenly… died.”

The Aussie retail sector has been in dire straits lately. The economy is chugging along nicely - GDP growth is running in the mid-to-high 2s, inflation is in the mid-3s, and terms of trade are at an all-time high - but you wouldn’t know it if you looked at the shopping streets of Melbourne.

The strip of Little Collins Street between Russell and Swanston has always been the best place in Melbourne for quality Australian-designed menswear. It’s never been cheap - AUD $100-200 for a shirt, that sort of thing - but it’s the sort of clothing that appeals to younger buyers with plenty of disposable income, and it’s always been a thriving strip of shops… or it was, until three months ago.

Since then, the entire strip has abruptly imploded.

Satch (one of the biggest and best-known names) and Genae have collapsed into administration. Verve and Aquila are posting “going-out-of-business” signs. Every other shop is advertising discounts of anywhere from 25-80%, but they were all completely empty - and this on a Thursday afternoon after work, with the Australian Open in full swing just half a mile down the road.

I asked a shop assistant what was going on.

“Well, things were going well for us earlier this year - and then in October, it all suddenly… died. After Satch collapsed, nobody’s been coming in, and everyone’s struggling. A year ago, people would’ve been like ‘I’ll go in, pick out five things, and I’ll just buy them’. But now everyone’s scared: it’s not that they don’t want to spend $150 on a shirt, it’s that they don’t want to spend anything at all.

“We’re doing okay, because we’re just new and we’re starting to build up some customer loyalty. But the other guys, the bigger guys - they’re really in trouble.”

The problems in Australian retail aren’t just limited to the mass-affluent crowd. JB Hi-Fi, Australia’s most successful electrical retailer, dropped a surprise profit warning just nine days before Christmas. Big department-store chain Myer has been struggling for months.

But the collapse of established groups like Satch indicates that the trouble in Australia’s retail sector is getting worse. Combine this with the dubious employment numbers - the big takeaway from today’s number is that job growth in Australia has dropped from +300,000 in 2010 to zero in 2011 - and it’s hard to escape the conclusion that the Aussie economy is starting to struggle.