Why Retail Is Not Dead
October 4, 2018
By Matt Hibbard
Barely a day goes by, or so it seems, without another retail chain hitting the wall.
Yesterday it was upmarket chocolatier, Max Brenner. Though to be clear, it has gone into voluntary administration. Its stores will continue to trade while the administrator tries to re-finance it, or sell it as a going concern.
Its 600 staff, though, must be nervous about what comes next.
The Max Brenner collapse adds to a growing list…a list that includes some high profile names.
Last year, it was high profile leather good retailer, Oroton Group. Meantime, Toys R us, Pumpkin Patch, Marcs, Herringbone and other chains have also gone by the way.
In a report in March this year, industry site Inside Retail Australia wrote that:
‘Almost 1,500 retail businesses are at risk of imminent collapse, including more than 260 retailers with turnovers of more than $10 million annually, according to research by SV Partners.’
It’s a scary number. If you just read that, you would think all is lost. But as the report went on to say: ‘This represents a 3 per cent increase of “at risk” retailers in the last 12 months.’
There is little doubt that retail is a tough game. The hours are long, and staff expenses are high. Plus, there’s nothing from stopping a bigger competitor from coming along and opening up right next door.
Yet despite the bad news, not everyone is doing it so hard.
The vacancy rates in some of our biggest shopping malls remain relatively unchanged. According to research by property group JLL, average retail vacancy rates in Sydney are just 3%.
While that is 0.5% higher than the previous half, it is the same rate as a year ago.
Part of this has to do with the big landlords. That is, those who own our vast shopping malls. Not only in how they manage tenants, but in how they manage their own space.
If you just read the headlines, you’d be inclined to think that retail is dead. That with the onslaught of the massive internet retailers (called ‘e-tailers’, all retail businesses will eventually fail.
But while there will be retail businesses that do fail (like any other businesses), it’s not so black and white. As it has always done, it will continually reinvent itself. Just like any other industry does.
Those huge landlords I mentioned, like Vicinity Centres Ltd [ASX:VCX], have already readied themselves for the change.
It was the reason behind its name change from Federation Centres two years ago. The name, Vicinity, represents, as Vicinity describe it, ‘A place to meet, a source of fun, entertainment and lifestyle…’
In other words, a place to meet and hang out with friends and family. Not just to shop, but to dine, watch a movie or grab a cup of coffee.
The vast shopping malls will become a ‘destination’ point. A place to experience things, rather than just to buy some clothes or shoes.
That’s also why Vicinity is focusing on its bigger malls and offloading its smaller centres. This week it announced the sale of 11 sub-regional and neighbourhood centres for $631 million.
That means Vicinity has now sold 35 of its near 100-centre portfolio at the time of its merger. (Note: Federation merged with Novion Group in 2015).
Chadstone Shopping Centre — half-owned by Vicinity — is also developing a hotel on its site. Plus, it will use other sites to build apartments.
The goal of that would be that owners never need to leave their retail precinct. They can go to a restaurant, go to a movie, and do their weekly grocery shop all in the one place. Brick and mortar isn’t dead
There are also those that say brick and mortar retail is dead. But what some might not realise is that Amazon is planning its own store roll out.
It has been trialling Amazon Go, a store where there is no cashier. Shoppers pick up the goods they want via an app. Amazon charge their account the moment they leave the store.
Last month Bloomberg reported that Amazon is planning to roll out 3,000-plus stores by 2021. Though, for now, it is still in its infancy. That comes on top of its book and ‘pop-up’ stores across the US.
Of course, local retailers aren’t sitting around waiting for an imminent death. Harvey Norman Holdings Ltd [ASX:HVN]recently launched a completely revitalised flagship store in Sydney.
And JB Hi-Fi Ltd [ASX:JBH] bought out larger white-good retailer The Good Guys in 2016. It is busily integrating its operations, and sprucing up its online presence.
Just because Amazon has landed in Australia, it doesn’t mean the death of retail is a fait accompli. As the Sydney Morning Herald reported in August, total sales for Amazon in December last year came in at a paltry $16 million. That’s at a time when it should be its busiest.
No, retail isn’t dead. But as always, it continues to change. Not all concepts work, as we know. However, a good place to find out what is happening is by watching what the big shopping mall owners do.
All the best,
Matt Hibbard,
Editor, Options Trader
VCX Price at posting:
$2.60 Sentiment: Buy Disclosure: Held
, all retail businesses will eventually fail.
(20min delay)
