Why big shops are failing

Max Brenner and Toys R Us have closed their Toowoomba stores

THE exit of big-name brands like Max Brenner and Toys R Us from the Toowoomba retail space could be a positive thing for the Garden City in the long run, a finance academic has said.

University of Southern Queensland School of Commerce Associate Professor Peter Phillips said a company generally failed because of cash flow issues.

“You need to have the cash flowing through the business,” he said. “If it dries up you have trouble meeting your obligations. “You could be a seemingly good brand, with goodwill from customers, but that doesn’t matter.”

Prof Phillips said the reasons for Max Brenner and Toys R Us’ closures were slightly different.

“Max Brenner had cash squeezes coming from two sides,” he said.

“On the cash coming in side it was drying up in some respects, as the consumer market in general has been a little bit weak. Consumers weren’t spending as much as they thought they would on products they were selling.

“On the other side the company took on a fairly rapid expansion, as well as refurbishments of their stores. They had cash going out as they thundered that expansion and refurbishment, while cash coming in was not as much as expected due to changing consumer behaviours.”

He said Toys R Us had a similar, but slightly different story.

“The cash flow was drying up, but again on the other side cash going out was increasing, as the global company, the American parent, had a lot of debt,” he said.

“You have to pay your debts, you have to meet obligations.

“They were also facing stiff competition from Kmart, Amazon and other retailers.

“Too much cash going out and not enough coming in is a dangerous situation.”

He said when closures happened it created an immediate negative impact on the community.

“It’s very much a negative impact for the people who work there,” he said. “Also, for people whose business has relationships with those companies.”

Though Prof Phillips said in the long-term things were looking more positive.

“New companies and ideas emerge all the time,” he said.

“One can hope these newer, smaller companies might one day grow into larger companies and take the place of these firms that found themselves on the wrong end of consumer tastes and the way in which the world has been moving.

“Innovation is the key, innovation is what drives new companies and economies. The failure to innovate and get overtaken is another reason companies fail.”

He said Toowoomba, already known as an innovative centre, was in the perfect position to exploit this innovation boom.