RETAIL consumption growth rates are expected to return to 6% by 2016, but complacent retailers will not enjoy the spoils because unless they change their out-dated businesses, according to Urbis.
The stronger growth will be welcomed by the sector, which last year witnessed a 2.5% growth rate.
Urbis director Ian Shimmin also told the Australian Property Institute REIV State of the Market conference that online retail trade growth rate has moderated considerably from 34% in 2011 to 13% as at January 2014.
Shimmin said online retailing currently accounts for 6.5% of annual retail turnover or approximately $15 billion, and while that might seem high, it started from a very low base. Online retailing represents 10% of discretionary spending.
He added that online sector is currently diverting 1% of retail consumption from traditional bricks and mortar.
He predicts online retailing will eventually cap at 15% of annual retail turnover in a decade.
But online retailing is not the only issue facing the local retail industry, Australians travelling overseas are so having an impact. Shimmin said last year approx 8.3 million Australians went overseas for “a short term” aka tourists, a staggering figure considering the country’s population is 23.34 million.
Another challenge facing the industry is the high rate of household savings, currently sitting at 11.1%, which is above the 20-year average of 6.8%. The savings rate was negative prior the global financial crisis and not surprisingly, the rate skyrocketed during the GFC.
Shimmin said as a consumer confidence improves, a 1% reduction in household savings would add approx 1.5% to annual retail spending growth or $4 billion. And if that is directed towards discretionary spending, the figure is higher at $8 billion.
Shimmin said the future of retailing in Australia is “same, same, different”, in that retailers and landlords can no longer expect to return to the past. They must adopt new strategies, such as multichannel retailing for retailers and better tenant remixing for landlords.
For landlords, the rise of mini-major will be the key. According to Urbis, total centre retail turnover for mini-majors has grown to approx 13% in 2013, in contrast to the declines in the discount department stores and department stores.
Shimmin said mini-majors are helping to offset the decline of the department stores. For example, he pointed out that a 600-sqm Apple store “does half the turnover of a department store”.
Meanwhile Shimmin said the woes of Australian department stores is isolated, because department stores in other countries are performing well.
“Department stores are not what they used to be. 30 years ago they represented 30-40% of total purchase, now it’s only 15%. That isn’t the case for the rest of the world,”
Shimmin believes department stores in Australia are still playing catch up and need to find “a response to respond to the changing market and demographics”.
He added that the problem with local department stores is that customer service is “critically woeful”, driving away shoppers who want “an experience” when they walk into a bricks and mortar store.
According to Urbis, department store turnover continued to decline. In the top 10 regionals, growth was -2.9% in 2009; growth had a short lived 2.7% gain in 2010; but declined by 4.2% in 2011; down 3.7% in 2012 and declined by 0.6% in 2013.
Urbis found 25 regionals had static or negative turnover growth for department stores as a category and 15 regionals had positive growth, this includes all Western Australia regional centres.
“It depends on how retailers will respond as household savings rate declines,” he concluded.
Property Review
