MacroPlan, E-News miniseries 1/4
Unpacking the impacts of online technology at a macro level, Australia is trailing the US and UK by around 3 years i.e. the US had 12% of sales online (8% in 2015) and Australia currently has 8%. Historically (1992 – 2018) retail sales growth in the US has averaged 0.36% MoM compared with Australia historically at 0.48% MoM. This historic growth rate is not likely to be achieved until retail price deflation bottoms out and wage prices increase. Based on history (Graph 1) sustained annual retail trade growth is likely to be in the range of 2.5% to 3.5% driven by population growth (1.6%), employment growth (2.1%) and inflation (2-2.5%). I’m predicting stable growth in Australia because much compositional and structural change in the sector is underway and Australia’s corporate retailers are adopting world’s best practice for e.g. Woolworths new distribution centres at Dandenong and Tarneit. Online retail impacts on bricks and mortar will occur, but as history and innovation practices in retailing suggest, these impacts will be largely absorbed and well located and established main streets and malls will survive.
Currently 40% of retail sales growth is directed to online sales in the both US and Australia. Assuming that 50% of all future growth in retail sales is directed online then retail sales from bricks and mortar should grow at around 2% per annum (excluding redundant floorspace), in the medium to long term but the geographic distribution of growth in floorspace, and retail rental impacts will be uneven. For example, product types such as audio/visual with strong online presence can utilise less shopfront or in-store floor space and therefore secure premium shop front with concessions using in-store locations. Rental profiles for shopping centres could therefore increasingly reflect the online sales potential of tenants, not just the sales potential of trade catchments. New analytics developed at Macroplan reflect the compositional impacts of online retail both positive and negative. Negative impacts of in-store trade caused by retail price deflation and can be counterbalanced by increasing sales volumes for many products or purchase of supplementary products. Global retail sales potential will considerably outweigh product price deflation and creates a real opportunity for retailers. The real impacts of online retailing on bricks and mortar need to take into account evolving retailer business models. These models will be further explored in following Macroplan e-news. Irrespective retailers who embrace the technology/online world will have a far greater chance of thriving in the future.
MACROPLAN – CHAIRMAN