Too many shops! That is the awful reality for traditional retailers, and investors in retail-focused funds, because there is no hope of a sudden revival of shopping as we have known it.
Too many shops! That is the awful reality for traditional retailers, and investors in retail-focused funds, because there is no hope of a sudden revival of shopping as we have known it.
From middle America, to the high streets of the U.K., to the suburbs of Perth, the story is the same because shopping habits have changed --forever.
Recession, and the urgent need to repay debts, is one reason why retail sales figures have crashed in Britain. Australia's multi-speed economy is a problem in Sydney and Melbourne. The ease of internet retail cruising is another. Generational change is a fourth.
There might be other reasons, but four factors is not a bad start in analysing what appears to be a fundamental shift in the way one of the major sectors of any western economy works.
Proof that all is not well in the retail world is easy to find, in both numbers and words.
The share price of Westfield Group, arguably the world's biggest shopping centre owner, puts a dollar figure on the change. With 119 centres, or malls if you're reading this in the U.S. Westfield is exposed to the Australian, British, New Zealand and U.S. retail sectors, providing space for 24,000 shops.
Over the past 12-months Westfield's share price has fallen from a $13.47 to a closing price yesterday of $8.99 - a few cents above its 10-year low of $8.91 reached on March 17.
A big part of the fall can be explained by a company split which saw the creation of the Westfield Retail Trust late last year, a vehicle which shares ownership of 54 Westfield centres in Australia and New Zealand.
That new vehicle has been an investment flop, raising $2 billion from investors at $2.75 a share, and trading today at $2.57, having rarely touched its issue price.
A better way of looking at Westfield is to track a 10-year share price graph which shows a few bumps, especially in 2002, before a strong rise to a peak of more than $23 in early 2007, and then a sharp downward slide, culminating in a $3 drop when the new retail trust was spun off.
The point about picking on Westfield is that it is a local litmus test of a sick sector which can also be measured in the words of leading retailers such as Gerry Harvey who last week warned of a wholesale retail decline.
"There's an awful lot of retailers just surviving, who have sacked all their staff and kept mum, dad, and the kids working 14 hours a day just to keep the doors open," Harvey told The Australian newspaper on Friday. "You'll see a lot of retailers going in the next few months, they just can't survive."
The collapse in recent weeks of the Angus & Robertson book chain, and the Colorado clothing chain, is an example of what Harvey sees ahead for Australian retailing.
But, the interesting (if not alarming) point about what's happening in retail is that the slide is global. Retail sales in Britain collapsed in March to their lowest in 16 years, while reports from the U.S. indicate that malls across that country are peppered with closed shops.
Recession and debt repayments are a big factor in the U.S., but so too is the rise of internet shopping, and the use of smart technologies, such as bar-code price tracking, to destroy retail profit margins.
What many people forget about retailing is that apart from certain items, such as jewellery, margins are generally very thin and it doesn't require a lot of lost turnover to flip a once profitable business into a loss-maker given that adjusting fixed costs is devilishly difficult.
Evans & Partners, a boutique Melbourne stockbroking firm, last week provided a useful look into the way the internet is changing shopping habits. In a graph plotting retail sales, and expectations of future sales, it shows that:
- Three years ago 95% of retailers surveyed expected less than 0.5% of their sales would be over the internet and 5% expected to do between 5%-and-10% over the internet.
- Over the past 12-months the sales experience has actually been 61% of retailers achieving that less than 0.5%, 30% doing between 5%-and-10% of sales over the net, and 9% of retailers doing between 10%-and-20% of their business over the internet.
- For the next three years the expectation trail is that just 5% expect internet sales of less than 0.5%, 52% expect to be between 5%-and-10%, 35% expect to be between 10%-and-20%, and 8% expect to be doing more than 20% of their business over the internet.
The astonishing aspect of that survey is that it covers a six year period. Three in the past, when the internet was somewhere over the horizon for most retailers, to the dreadful dawning of today, and three years into the future.
Which comes back to the opening point, a realisation that owning a bricks and mortar shop is becoming an unbearable cost for many retailers, and a drag on investment portfolios.
The internet revolution is moving on, having claimed music shops and bookstores, it is now stalking virtually everything else.
