If you’re waiting for retail to ‘bounce back’, you might want to pull up a chair. According to new data from CreditorWatch, this isn’t a soft patch or a post-COVID hangover. It’s a full structural shake-up, and it’s already claiming casualties.

CreditorWatch’s freshly minted Retail Reshuffle report suggests consumer behaviour has changed, discounting has become permanent, and the gap between the retail haves and have-nots is getting wider by the month.

Retail insolvencies are running about 50 per cent higher than pre-COVID levels, with more pressure tipped right through 2026. While the headlines often focus on big brand collapses, the real story is playing out quietly among small businesses with thinner margins and weaker cash flow.

This isn’t retail ‘having a bad year’

While it’s tempting to blame the changed conditions on inflation, interest rates or nervous consumers, and assume things will normalise once the economic clouds clear, CreditorWatch says that thinking will get you into strife.

“What we’re seeing in retail is not a temporary cycle – it’s a structural reset,” CreditorWatch CEO Patrick Coghlan says. “Consumer behaviour has fundamentally shifted, seasonal patterns have been rewritten, and the gap between large and small retailers is widening.”

Coghlan says the reset was masked for a while by pandemic-era conditions: government support, near-zero interest rates and consumers funnelling money into goods because they couldn’t spend on travel or experiences. However, those conditions have worn off.

What’s left is a more competitive, margin-thin retail environment where mistakes are punished quickly.

The warning signs are flashing red

Coghlan says formal insolvencies tell only part of the story. The more worrying signals are showing up earlier in the cycle.

CreditorWatch data shows invoice payment defaults have spiked to new highs, alongside elevated ATO tax defaults. Both factors are the well-known lead indicators of future business failures.  More retailers are struggling to pay their bills, and that usually ends badly.

Retail insolvencies have climbed steadily from pandemic lows and now sit well above historical norms. In the first half of the 2025–26 financial year alone, 548 retail businesses collapsed. That’s up 34 per cent on the same period a year earlier.

Fashion and furniture feeling the squeeze

Not all retail is hurting equally. The pain is most concentrated in discretionary categories. Think the items that customers cut back on when budgets tighten or priorities shift.

Clothing, footwear and department stores are under sustained pressure, caught between weak demand and relentless discounting. Furniture, homewares and recreational goods are also struggling as pandemic-era demand unwinds and higher interest rates make big purchases harder to justify.

“These are the parts of retail where consumers can choose to delay, downgrade or do without,” CreditorWatch Chief Economist Ivan Colhoun says. “And that’s exactly what we’re seeing reflected in payment behaviour.”

Colhoun says higher interest rates are compounding existing structural issues. “The interest rate increase will likely add pressure on top of the structural changes already being felt across a number of retail sectors,” he says.

“With the post-holiday period often being a time of slightly weaker spending, insolvencies are likely to remain at or above recent elevated levels in coming months.”

Small retailers copping it from all sides

One of the strongest themes running through the report is business scale and the difference it makes to success or failure..

Large retailers with deep pockets, strong supplier relationships and sophisticated logistics networks are continuing to gain market share. Smaller businesses are being squeezed from all sides.

eCommerce has levelled the playing field for customers, but tilted it sharply against smaller businesses. Online retail isn’t in a growth phase anymore, and in a mature market, size brings lower costs, faster delivery and sharper pricing.

Freight, insurance, labour and energy costs remain high, leaving little margin for error. For many smaller retailers, one slow season or one misjudged order can be enough to tip cash flow from tight to terminal.

Black Friday has wrecked Christmas

If Christmas doesn’t feel like the saviour it once was, there’s a reason. Black Friday has permanently dragged sales forward, flattening December peaks and normalising heavy discounting earlier in the year. That’s manageable if you’ve got scale and stock flexibility. It’s brutal if you don’t.

“Seasonal patterns have been rewritten,” Colhoun says. “Retailers are dealing with sales volatility that didn’t exist to the same degree a decade ago.”

Discounting has gone from tactical to structural, and margins have worn the cost.

Aussies are buying experiences again, not stuff

Another shift reshaping retail is where households are choosing to spend.

Consumers are pivoting back to services, such as travel, dining, and entertainment, after years of goods-heavy spending. Essentials remain steady, but discretionary goods are now competing with experiences, and often losing.

ABS data shows there is a divide between non-discretionary and discretionary spending, and CreditorWatch’s payment data mirrors it. Recreational goods and electronics retailers, in particular, are feeling the whiplash from pandemic demand spikes followed by slower, patchier recovery.

Colhoun suggest the problem extends beyond the retailers. Anyone supplying into the sector needs to be paying attention.

“Businesses exposed to the retail sector should take a more active approach to credit risk,” Colhoun says. “Closely monitoring credit ratings, invoice payment behaviour and ATO tax defaults across retail trading partners is essential in this environment.”

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