Something has to give for SMEs: Gottliebsen

Make no mistake – large slabs of the Australian small business community are hurting. Their hurt is below the surface, but over time it will emerge to bite the economy.

When the Reserve Bank sat down on Melbourne Cup day to increase interest rates by 0.25 per cent, there was one indicator that they would never have contemplated using – what’s happening to registrations of Australian domain names using ‘.au’. And yet that indicator is at the cutting edge of techniques to determine the future prosperity of a vast numbers of smaller enterprises.

The theory goes that if they are not registering domain names, they are stagnant.

While there are great imperfections in this indicator and the actual material is hard to find, a significant change took place as 2010-11 dawned. After rising for the previous nine months, Australian domain registrations suddenly started to turn down in July. They fell again in August and again in September. In those three months they fell between 10 and 15 per cent, although the three months total to September is still higher than a year ago.

Smaller and medium-sized businesses around the country are under pressure and are becoming much more conservative. According to those who study domain registrations, there are two sectors that are still doing very well – health and business consulting. But there is one sector doing very badly – retail.

I recently highlighted the fact that the demand for accountants was rising (Australia is ready for lift-off, October 26). I also thought there was a reasonable expectation that in the coming months, the recent rise in retail confidence (Why the RBA is very nervous, November 1) would have moved through into the sales figures of small retailers.

But the Reserve Bank rate rise and the CBA decision to lift mortgage rates a whopping 0.45 per cent, plus the likelihood that at least some of the other banks will follow, will dent consumer confidence.

A large number of smaller enterprises have now been hit with many blows at once. It is not easy to get bank loans – plus, the lack of flexibility in the Gillard industrial relations legislation is also starting to bite some businesses. And now the ACTU wants the Gillard government to make casual employees permanent if they have been employed for 12 months. Many small businesses (particularly retailers) survive because casuals give them a flexible labour force. If Gillard caves in it would be a crushing blow.

Many retailers have been hit by the move to online shopping, which is now gathering momentum. It’s lowering the turnover of those paying rent and the wages of staff behind the counter.

Small enterprises have not shed staff because they believe the good times are coming, and sometimes they cannot afford the big payouts involved.

Among consumers the interest rate rise, plus the rising share market, will boost the spending of retired people financing their own retirement. But those who bought houses two years ago on virtually no deposit via the first home buyers grant are now struggling. If a smaller enterprise is serving people who are being hit hard, the business will struggle.

At some point there will be substantial labour shedding, and that’s when the rubber hits the road.

Footnote: There is one danger in using Australian domain name registrations as an indicator. Many businesses are using Facebook and Twitter to market goods online. Foster’s Yellowglen used Facebook brilliantly at the Melbourne Cup.

This article first appeared on Business Spectator