15/11/2011 - 08:51

Analysis: Retail's summer of discontent

15/11/2011 - 08:51

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Analysis: Retail's summer of discontent

Claremont and Dumbleyung do not have much in common, except in a drought, which for the wheat-belt town is when shops shut because it hasn’t rained, and in ritzy Claremont it’s when shops shut because there is a retail drought, such as now.

Comparing a small country town with an inner Perth suburb might seem odd, but there is a common thread – an over-supply of shops and declining traditional business.

During drought years in the bush all country town suffer greatly. A few years ago a walk down the dusty main street of Dumbleyung left a lasting impression of the damage done by drought with vacant shops and boarded windows having a chilling effect.

Today, the same sensation can be experienced walking down the main retail street of Claremont, Bay View Terrace, where at least nine shops stand vacant, roughly equivalent to 20% of the frontage in what once ranked as one of Perth’s top retail locations.

Blame for the desolation of the oldest shopping strip in the western suburbs is being heaped on the big, new, Claremont Quarter shopping centre, and allegations of high rents demanded by landlords in Bay View Terrace.

It is partly those factors, but there is another force at work called internet shopping and in well-heeled Claremont shoppers are embracing the internet, as well as being offered more shops, which simply means there is not enough business to go round.

Internet sales and home deliveries might currently be a small proportion of total retail sales but it is a growing sector and in retail you only need to lose 10% of your revenue, and that’s your profit gone because the fixed costs, such as rent, stay fixed

The pain being inflicted on most shop-based businesses by the growth of internet sales is hard to measure, but a glimpse is possible in the share price of the world’s biggest shopping centre owner, Westfield.

Since hitting a peak price for the year of $10.20 in February, Westfield Group shares have declined to recent sales at $8.25, but did drop as low as $7.21 in early October, with the recovery perhaps reflecting slightly higher national retail sales figures in the three months to the end of September, and because Westfield has added an online shopping website to its offering.

At Harvey Norman, which has been slow to embrace the internet and is a believer in owning its own retail properties (for sub-lease to tenants and franchisees), the picture is much bleaker with its shares being cut in half over the past two years from around $4.70 to $2.17.

The problem with the recent improvement in retail sales is that they are not broken down into over-the-counter sales and internet sales with traditional shop-based retailers being forced onto the discount-focussed internet to retain business, while also being forced to pay rent on an outlet that might not be paying its way.

What’s happening with traditional retail, too many shops chasing too few customers, is nothing more than a continuation of the internet revolution which first swept most music stores out of business, then attacked book shops, while also destroying the classified advertising sales of daily newspapers which have lost much of the home and car business.

Other parts of the retail sector are preparing now for the internet juggernaut with liquor sales and up-market clothing said to be facing increasing competition.

At a time when sales of wine and beer are at a peak thanks to pre-Christmas and New Year demand there is a noticeable leakage to the internet with the growth potential of liquor sales attracting the attention of the same internet-savvy team which developed Carsales.com.au.

The Carsales crew is behind crackawines.com.au and they reckon that within four years a massive 25% of all wine sales will be online.

There is, for followers of the retail sector, nothing new in the rise of the internet as a potent competitor. The cost advantage which comes from not renting retail space has been obvious since Amazon started shipping books around the world.

What’s happening now is that the internet phenomenon is biting the retail property sector which is running out of prospective tenants. Having lost music and book stores it seems likely that liquor stores and some up-market clothing shops will fade from view.

Claremont will never be Dumbleyung, but if anyone doubts the demoralising effect of empty windows on the mood of shoppers go for a walk down Bay View Terrace and seen the effects of landlords demanding high rents at a time of profound change in the retail sector.

 

STANDING BY BUSINESS. TRUSTED BY BUSINESS.

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