Retail sector – Challenges ahead but opportunities for the savvy

James Turnbull, Manager - Retail The retail sector has faced some tough times in recent years. We hear stories in the media about the difficulties faced by domestic retailers, and how sales growth has been sluggish. Indeed the ABS Retail Trade publication showed retail sales fell by 0.4% in the month of March 2013. However year on year sales grew by 3.4% for the year to March 2013 (seasonally adjusted).

There was continued solid growth for food (+4.4%) and food catering (+6.2%), however spending on department stores (+1.5%) and household goods (+1%) is still well below average, although sales growth has improved in recent times.

MacroPlan compiles a monthly benchmark of shopping centre turnover, based on a sample of more than 300 shopping centres across Australia, which provides real-time, actual trading performance diagnostics on a monthly basis. Our most recent benchmark report indicated that for the year to February 2013, shopping centre MAT productivity increased across all assets, with regional centre sales up by 2.5%, DDS centres up by 3.6% and supermarket centre sales up by 4.0%.

In a nutshell, there appears to be some green shoots of recovery in the retail sector. Recent moves by the RBA to reduce interest rates to a record low of 2.75% should further fuel a short term recovery. We have already seen the AUD dip below parity as a result, which should excite many domestic retailers. The strong currency has lead to significant volumes of household expenditure leaving the country, with some $8 billion spent by Australians overseas in the year 2012.

However, looking forward, the retail sector does face some ongoing challenges, some of which are key structural changes which retailers and landlords will need to adapt to. Some of these include:

  • The ageing population — many of whom are under-superannuated, with lower annual spend.
  • The rising cost of living - non-tradeables inflation (i.e. costs for services such as health, education and energy) is eroding household budgets.
  • Changing consumer behaviour — the share of the household budget dedicated to retail is diminishing, albeit slowly, with consumers increasingly spending on health, well-being and travel.
  • The disruptive role of technology, including internet and social media — retailers are adapting with multi-channel strategies, although some categories will really suffer.
  • The increasing number of international retailers — with efficient, vertically integrated business models.

The good retailers and landlords understand these challenges, and have already started to adapt. Australian retail has been blessed with a pretty good run over the past 20 years, with most retailers getting by. However the future is likely to see a divergence — with some winners and some losers.

Should you wish to discuss MacroPlan’s monthly shopping centre turnover benchmarks, please contact Ellis Davies — Manager.  For any other targeted retail economics services, please contact  Tony Dimasi, Director - Retail, Heath Tregear — Senior Manager or James Turnbull, Manager - Retail.