THE threat of store closures at major chain operator Premier Retail has underscored the difficult trading conditions for the sector, with Western Australia’s resources industry failing to provide the state immunity from slow retail sales.
Reports from across the sector reveal trading is poor, especially outside the supermarkets where non-grocery retailers face increased online competition as consumers capitalise on the strength of the Australian dollar and growing confidence in internet transactions.
Premier said this week it might close 50 non-performing stores, at the same time as opening another 100 outlets related to its growth brands. It said the underperformance spanned its national portfolio, which included Just Jeans.
The retail drama has not escaped the attention of Reserve Bank governor Glenn Stevens, who raised the issue this week following debate among bank economists last week as to whether the next official interest rate move would be up or down.
“In per capita terms, real consumption today is no higher than three years ago,” Mr Stevens said.
“It’s no wonder that people are talking about consumer caution, and no wonder that retailers are finding things very tough indeed.
“Coming after a period in which real consumption had risen by 2.8 per cent a year for a decade, and had outpaced income growth for two decades, no net growth in consumption for three years is quite a big change.
“But these figures suggest that lack of income growth is not the reason for lack of consumption growth.
“It’s not that the income is not there, it’s that people are choosing, for whatever reason, not to spend it in the same way as they might have a few years ago.”
National shopping centre manager Colonial First State Global Asset Management has backed up this view. Group managing director Darren Steinberg told WA Business News consumers were not on strike but they were cautious and had changed behaviour, notably with big purchases like overseas holidays that were unlikely to be repeated every year.
“They are spending but they are very selective about where they are spending,” Mr Steinberg said.
Colonial First State manages two shopping centres in WA, Midland and Rockingham. The latter was one of several quality regional shopping centres which had been redeveloped and were experiencing strong sales growth.
Earlier this month upmarket department store operator David Jones confirmed the worst fears of those watching retail sales when it said its full year net profit would decline by between 0.5 and 2 per cent.
The bad retail environment has not stopped shopping centres changing hands. The recent sale of Thornlie Square Shopping Centre for $22 million has highlighted views that east coast investors were eyeing WA’s retail assets as the state continues to outperform on most economic measures.
Adelaide-based Nick DiMauro bought the centre from national property organisation Australian Unity, his first purchase in WA.
Thornlie Square is a sub-regional shopping centre, which features Coles and Supa IGA supermarkets and approximately 40 specialty stores.
“We have purchasers waiting for real estate opportunities and, whilst there is some negative sentiment in the market, retail property is still in high demand,” said Lease Equity managing director Jim Tsagalis, who negotiated the deal.
The Thornlie sale will buoy the hopes of others in the market, including Dianella Plaza and the Phoenix Shopping Centre in Spearwood.
Both centres are being marketed for their redevelopment potential, something which is likely to test investor enthusiasm for the state government’s new retail property planning policy, which has abolished caps on retail development in a bid to develop integrated town centres with a blend of residential and commercial uses and strong links to key transport arteries.
WA retail property was already being targeted by east coast investors before the Thornlie sale as evidenced by the sales campaign for Geraldton’s biggest centre, Northgate.
Planning rules are not the only factor influencing the retail sector in WA.
The state government’s planned push to give retail tenants more say and power in lease negotiations continues to divide the industry.
Proposed changes to the long-standing Commercial Tenancy (Retail Shops) Agreements Act focus in part on the vexed issue of market rent reviews for retail properties.
The government wants to give more bargaining power and information access to tenants in relation to their shop leases.
The Bill would require landlords to supply values with leasing information that would assist in the preparation of leases, rent reviews and would reveal discounts and incentives that are often closely guarded.
