The real state of Australian Retailing

Shopping Centre News
Tony Dimasi
Vol 32, Number 1, 2014 – 2014 Big Guns

It’s a few years now from the beginning of the GFC.  Retail across the globe has been battered but in Australia, although many retailers have been doing it tough, conditions are not as bad as elsewhere.  

Tony Dimasi looks at the state of the shopping centre industry since the GFC and more importantly, looks where the Big Guns are going in the future.

This is the first of a regular column by Tony Dimasi – exclusive to SCN.

It is now a touch over five years since the US Government allowed the investment bank Lehman Brothers to go bankrupt, on 15 September 2008. That was the date when the global financial crisis came to a head, and arguably the date of its official commencement.

It is worth asking at this point, what has happened to the Australian retail sector, and in particular to Australian shopping centres, in this 5-year period, and what is the real state of retailing in this country?

I ask that question against the background of many conflicting and arguably contradictory signals which are out there, and have been out there, for some time.

While most people would agree, I think, that generally the past five years have been fairly tough for the Australian retail sector, there is a wide diversion of opinion on the overall health of the sector, and particularly the health of shopping centres.

Chart-1On the negative side, the various failures of retail chains, and consequent closures of stores, have been well reported over recent years, while the woes of Australia’s department stores continue, with no obvious ending in sight. Online sales continue to grow at around 20% per year, while the struggles of the bricks and mortar discretionary retail sector generally, and the fashion sector in particular, also continue. Retail rents have also been flat, and in some instances have declined, over the past few years.

Chart-2

Amongst the positives, we continue to see very strong growth in food retailing of all sorts (supermarkets, specialty food and catered food); there is a large number of global retailers which have recently entered, or are about to enter, Australia; we are witnessing greatly increasing global investment in Australian shopping centres; a number of recent asset sales have shown bullish cap rates; and a massive redevelopment pipeline, especially for Australia’s major regional centres, is now evident.

Chart-3

It is also no secret that the leasing environment for retail space has proven very challenging over recent years.

Excluding department stores, the retail sector in Australia, and indeed Australian shopping centres, have therefore been resilient in the post-GFC period, even if the rates of growth achieved have been a shadow of the heights reached for about a decade and a half before 2008. However, this relatively sound overall performance has been of little comfort to those various retailers which have gone out of business, and probably also to many of the REITs which have struggled to generate income growth, let alone get new retail developments off the ground.
Chart-4

 Results over the past few months, both from the ABS Retail Turnover Series and from the Monthly Retail Benchmarks produced by MacroPlan, have been more encouraging. Growth has been returning to a range of 3% – 4%, and there are now reasonable expectations that 2014 could see growth in the range of 4% – 5%.

The Australian retail sector has suffered a buffeting, but remains in very sound condition, and appears well positioned to rebound, slowly but steadily. However, to leave it at that would mean not addressing a couple of very significant changes, which are more nebulous in nature but which I believe neither retailers nor retail developers can afford to ignore. Those factors are the far reaching extent of change that has been occurring, and will continue to occur, in consumer behaviours, and also the speed of change, in both demand and supply factors.

Keeping the attention span of shoppers is becoming harder and harder, and winning and retaining their trust is harder still. We all now know that the combination of new technologies and new lifestyles has impacted greatly on consumer behaviours, and that power to decide when to shop, where to shop and what to buy is now very much in the hands of the consumer. The clever retailers understand that, and are working within those constraints to reinforce those consumer behaviours in ways which benefit them as retailers. Those not so savvy are generally being left behind.

Even with regard to basic supermarket shopping, which has leaked only minimally to online to this point, the smartphone has already had enormous impacts. At present, for example, smartphones are used for making lists, finding recipes, checking reviews, and finding best prices and value, even for grocery shopping.

For the future, apps are being developed that will potentially attach sensors to:

  • test food for allergens, organic qualities, etc.
  • test whether fruit is ripe
  • test for foodborne bacteria.

The generational evolution of the Australian consumer is also likely to have far-reaching consequences even for something as basic as supermarket shopping. In the past, most shopping, including supermarket shopping, has basically been driven by baby boomers, who offered retailers loyalty and consistency in exchange for value and reasonable service. But the influence of baby boomers will steadily decrease over the next decade, with the less conformist, more demanding, and less loyal Gen Ys and Gen Zs increasing substantially. Their behaviours are sometimes paradoxical – in many aspects they are very price driven, however, there are instances when they will make exceptions for price, if a particular brand grabs their attention and becomes an important part of their peer group interactions.

Chart-5

All of these changes have far reaching implications, and many of them explode on the scene and move quickly through the system, rather than being gradual and steady agents of change, as tended to be the case in the past.

So what does all this mean for Australia’s major shopping centres, the Big Guns?

First, their resilience in the post-GFC period, and confidence about their future growth prospects, have underpinned substantial and growing investment in these centres by offshore groups. Groups such as Abu Dhabi Investment Corporation, Canada Pension Plan Investment Board, and South Korea’s National Pension Service have all made significant investments in Big Guns in Australia over the past year or so. Second, the many international retailers which have recently entered Australia or are about to do so are seeking the best of the Big Guns in which to locate, along with capital city CBDs. Third, the development pipeline for major renovations and expansions to many of Australia’s biggest and best shopping centres is huge, reflecting both an element of pent-up demand and a desire to take these centres to the next level. This new round of development will add more global retailers, more and better dining, more cutting-edge stores, with a focus on design excellence and the renewal and re-emphasis of sense of place which the best of the Big Guns have always delivered in spades.

Chart-6

And therein lies the secret – taking them to the next level. If the history of shopping centre development in Australia has taught us anything, it should be that capturing the imagination of the customer has always been key to success. This has been achieved in different ways at different stages, because the levels of customer expectation and sophistication have continually changed. In the past, it has been easier to achieve than it is today, not only for all of the reasons that I have set out above, but also because there are many more prosaic demands on the household dollar today – the increasing costs of housing, utilities, education, transport and other necessities of life.

Chart-7

Yet, when centres get it right, the rewards are enormous. We are now in the early stages of witnessing a number of Australia’s Big Guns getting it right for the next phase of growth, and riding the wave of success that will undoubtedly come with that.


About the author:

Tony Dimasi
Managing Director – Retail
E: dimasi@macroplan.com.au

Tony Dimasi is MacroPlan’s Managing Director – Retail.  Since 1982 Tony has undertaken independent research on behalf of retailers, shopping centre owners and managers, property developers, government and statutory authorities, as well as a wide range of other clients. The research includes both supply and demand analysis, as well as extensive customer research, investigating customer behaviour, motivations and preferences with regard to shopping and activity centre uses. Tony has worked across all parts of Australia and New Zealand, and has provided advice in relation to virtually every significant activity centre location in both countries. The range of projects has included BD properties, super regional centres, regional and sub-regional centres, district and neighbourhood centres, homemaker retail facilities, freestanding stores, and all other retail formats, as well as commercial and industrial precincts.
About MacroPlan:MacroPlan’s experienced and qualified economists align their understanding of macro-economic forces with micro-economic variables such as geographic and industrial characteristics, demographics, labour market shifts, resource demand and commercial realities.  Contact Jason Anderson, Chief Economist today to discuss your property research requirements.

 

 

 

 

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