How is the retail sector going now that restrictions are starting to lift? Will we become a country of low-value consumers that disappoint luxury retailers but hasten our sustainability journey or will we pick up speed again? We spoke to economist and property researcher Brian Haratsis, founder and executive chairman of MacroPlan (who spoke at Tomorrowland 2018), and took the pulse of the market from other sources.
The retail sector has been in pain, including at the top with major shopping centre operator Scentre cancelling its interim payout this week as coronavirus hit its bottom line.
If Australian shoppers are anything like the Chinese, the return to brick and mortar stores is unlikely to be quick. Recent McKinsey & Company analysis on the recovery of the Chinese retail sector shows that foot traffic is still down across discretionary categories such as food service outlets, apparel stores and department stores despite many provinces emerging from strict lockdown conditions in early March.
The research suggests that trends such as increased reliance on online shopping will stick around for some time, with online activity in China moderated since the lockdowns started lifting but visits to online stores still running at 15 per cent above pre-crisis levels.
Reflecting ongoing fears of venturing too far or entering crowded places, local convenience stores have seen an uptick in activity that’s endured, particularly in the biggest Chinese cities (daily consumption has run at around 36 per cent above pre-crisis levels in “tier 1” cities).
In Australia, National Australia Bank’s Commercial Property Index released last week shows that the fallout in retail sales hasn’t been as dire as expected. And with more retailers getting the green light from governments to reopen in the coming weeks confidence is on the way up – even though it’s unlikely sales will be at maximum capacity, thanks to social distancing requirements.
The retail property sector has hardly escaped unscathed, however. The NAB report found that retail property values are expected to fall by 1.4 per cent over the next 12 months. Retail rents are down 2.5 overall due to tenants struggling or folding, especially where the coronavirus has been biting hardest.
MacroPlan says online shopping is rising
Economist and property researcher Brian Haratsis, founder and executive chairman of MacroPlan, says that the rapid swing towards online shopping has kept a number of retailers afloat during the worst of the coronavirus storm.
He says there’s been an evident split between discretionary and non-discretionary spending, with essential items such as food up 10 or 12 per cent.
Speciality stores and non-food spending has indeed dropped by around 30 per cent but Haratsis says online sales have prevented an irreversibly steep decline.
“The online world has absolutely blitzed.”
The rise in online spending is all the more interesting given the drop off in what’s known as “hyper discretionary spending” last year due to soft employment and wages growth, as well as a general lack of confidence in the markets.
He says that omnichannel businesses that operate both online and offline are booming, such as electronics retailer JBH-Fi.
But according to Haratsis, there will still be casualties.
“I think it’s the middle tier that’s worst off – if you are a middle tier operation with significant bricks and mortar you would struggle to cut costs and you would have to reduce your floor space.
He says for medium-sized businesses, paying their way out of existing leases is going to be very cost prohibitive. This is likely to be more manageable for the larger operators as well as smaller boutique ones.
Why online shopping has been a successful lifeline
Part of retail’s resilience comes down to the businesses themselves, many have which have pivoted quickly to e-commerce operations if they weren’t set up for online already. It’s helped that it’s now pretty easy to sell goods online through existing platforms such as Ebay and Amazon.
Businesses have also been innovative in overcoming “last mile delivery” concerns, which refers to the final section of the delivery from a centralised hub to the person’s home. The virus has spawned unlikely new partnerships such as Uber delivery drivers making deliveries for the likes of Kathmandu and Coles.
It might sound obvious but Haratsis says online shopping has also flourished because people have been at home to receive packages, saving a trip to the post office on the weekend.
Policy settings that have impacted consumer spending such as Job Keeper and Job Seeker arrangements have also helped.
He suspects this will see many consumers stick with online shopping longer term, with many workers expected to continue working from home a couple of days each week, allowing them to receive packages.
Haratsis is uncertain whether suburban shopping strips will replace a trip to the shopping centre once a version of business as usual resumes. He suspects suburban shops will cement their position in the hierarchy as stores of convenience and the shopping centre will endure as a “day out”.