THE retail sector will need to brace for negative volume growth over the next year or two, but a two-speed market is emerging.
Speaking at the Australia Israel Chamber of Commerce 2023 Property Forum, Urbis director Ian Shimmin, said the market will be very different over the next year or two.
Shimming said households are coming down from the pent-up demand off the back covid, at the same time they are feeling the pinch due to rising interest rates and cost of living.
Furthermore he noted that households are drawing down on the $280 billion savings amassed during the pandemic to rising costs.
He said although retail spending soared during the pandemic, there are reports that some retailers have experienced a 20-30% decline in retail sales compared to a year ago.
Recently major department store David Jones blamed the rising cost of living for a slump in sales across its stores.
Eastland in Melbourne’s east reported a 38.96% plunge, whilst its Warringah Mall in Sydney and Highpoint in Melbourne fell 20.54% and 20.16% respectively. However its Bourke Street Mall store in Melbourne defied the slump, sales rose by 13.51% compared to last year.
And the Australian Bureau of Statistics data show retail sales were flat in the first quarter, up marginally by 0.4% in March. The latest ANZ-Roy Morgan consumer confidence index fell by 3.1 points to its lowest level April 2022.
But these conditions should not be treated as doom and gloom.
Shimmin said retailers and landlords should view this period as an “off season” and look at the strategy to evolve.
He cited Vicinity Centre’s Chadstone as an example of how a shopping centre has successful adapted, with premium luxury brands, food & beverage, and experiences offerings to cater for the changing market.
Westfield is another landlord also experiencing an increase in foot traffic and sales as it continues to change its tenancy mix within its centres. CEO Elliott Rusanow said the group’s strategy to attract more people had delivered a strong operating performance in the early part of 2023.
“Our focus is providing people with more reasons to visit our destinations and so far this year, we have activated more than 3,300 events.” Rusanow said.
Although the retail environment remains challenging, Ainsworth Property’s Zelman Ainsworth told the Retail Property Marketplace event in Melbourne that overseas retailers are still looking to expand in Australia.
Speaking in a panel about International leasing trends and how they can transfer to local markets, with Leighton Hunziker, director – retail services, Savills and Kristina Hetherington, managing director – Design Clarity, Ainsworth said “The fact of the matter is, Australia remains a highly profitable destination for retailers.”
In recent times, the Australian retail scene has seen overseas brands increase their physical footprint with new brick and mortar stores, including recent entrants Missoni and Brunello Cucinelli which joined the likes of Cartier, Valentino, Bally, Dolce & Gabbana, Bulgari, Chanel, Dior, Fendi, Hermes, Gucci, Prada, Louis Vuitton, Hugo Boss, Burberry and Versace.
One of the world’s leading fashion brands, Chanel, posted profits of $86.3 million in Australia in the 12 months to December 31 2022, up 32% on the previous year.
Chanel’s Australian sales growth outperformed the 9.5% in the United States, 14.3% in Asia Pacific and 29.6% in Europe.
Another French fashion house, Hermes posted a net profit of $87.37 million in Australia – up from $60.789 million, and more than double the $40.88 million result it recorded in 2020.
At the same time, Vicinity Centres has reported a 55.8% growth in luxury retail sales for the first half of FY23.
Design Clarity’s Kristina Hetherington shared some insights from international trends for the local market. She said to attract consumers to bricks and mortar physical stores, companies should not view opening a new store as just “a roll out” to increase their network.
Rather, Hetherington said retailers must treat a new store “as if it is your flagship”.
In which case, data is pointing to a two-speed consumer market emerging in Australia.
Ainsworth acknowledged there is a lot of talk about cost-of-living challenges but by the same token, pundits cannot ignore the fact that different generations of consumers, such as millennials, Gen Z and older Australians, are still spending.
The Australian Retailers Association forecasts that the 50–64-year-old demographic will be the biggest shoppers, encompassing 37.6% or $3.5 billion of the overall $9.3 billion spend on mid-year/EOFY sales.
Meanwhile, Gen Z and millennials are the fastest drivers of demand for luxury goods, according to Bain & Co, accounting for 72% of the global luxury spending in 2022 compared with 2019. Together, Gen X and millennials, represented a 66% of market share compared with Gen Z’s 8% share. Further data from Klarna revealed Gen Z (60%) and millennials made up the bulk of (63%) luxury purchases, outstripping Gen X (46%) and baby boomers (18%), in the past 12 months.
Bain & Co predicts the luxury goods market will be “recession-proof” in 2023, in partly due to millennial and Gen Z consumers.
“You cannot buy luxury goods or a watch. Groups like LVMH and Rolex have customers on waitlists,” Ainsworth told Australian Property Journal.
