WESTERN Australia’s super-charged resources sector has provided little protection for retailers battling to overcome sagging consumer sentiment and a shift from spending to saving.
The gloom in the retail landscape is not without its bright spots, however, with the change in spending patterns proving a boon for the food and beverage sector as customers seek experiences over high-priced fashion and household acquisitions.
Sometimes described as the ‘MasterChef phenomenon’, retail analysts also point to WA’s new liquor licensing laws to explain the rapid expansion of its food and beverage scene.
But it’s a more general move to service-based retail that explains the demand for new cafes and restaurants in Perth during this spending downturn.
Like so many parts of WA’s economy, the retail sector is a story of intertwining tales that appear almost contradictory.
While retail leases have shown little growth, demand for retail property is strong, both from institutional investors and private buyers keen to get a slice of the tightly held suburban sector.
The weak retail rental market, along with the state’s strong economic outlook, is spurring a number of major, global retail brands to set up shop in Perth.
Among the big names rumoured to be running the rule over retail leases in WA are Zara, Topshop, H&M and Abercrombie and Fitch.
Australia Post recently announced the sale campaign for its GPO Building in Forrest Place, and industry insiders suggest a major international retailer, possibly Abercrombie and Fitch, is one of the front-runners for the ground floor retail space in this commercial building.
The sale of four of Leederville’s most prominent shops on Oxford Street for $9.5 million in August set a new benchmark for the inner-city suburb.
Despite this, there have only been a handful of major retail sales in WA this year, including the Thornlie Square shopping centre, which sold for $21 million in July, and the Miami shopping complex in Falcon, which sold for $15.2 million.
The 2011 sales tally is sharply lower than in 2010, when 10 significant retail centres changed hands, including the Kwinana Hub for $25 million and Lend Lease Real Estate Investment’s purchase of the Harbour Town and Lakeside Joondalup Shopping Centre with the Government Future Fund for $134.5 million and $475 million respectively.
The soft spending outlook and downbeat consumer confidence data have discouraged retail landlords from selling and sharpened the focus on upgrading and refreshing properties.
The Westpac-Melbourne Institute Consumer Sentiment Index sagged by more than 11 per cent nationally in July and August with national retail sales growing by just 0.6 per cent in August. This growth was achieved in the food, cafe and restaurant sectors with clothing, footwear and department stores the weakest performers.
Sales in WA grew by a more substantial 0.9 per cent with the annual growth figure sitting at 8.5 per cent.
However the apparently strong WA spending figure is not reflected across the board and the sheer volume of vacant shop fronts in the city and suburbs points to a market where sales are hard won and growth elusive.
Jones Lang LaSalle’s Alison McKenzie characterises the current retail conditions as patchy at best. Retail rents aren’t in reverse but there is little if any growth.
Ms McKenzie, who is the director of retail management in WA, said while the state’s strong economic outlook should support record consumer confidence, it seemed saving rather than spending was the focus.
Jones Lang LaSalle manages centres across Perth’s metropolitan area, including Belmont Forum, Cockburn Gateway shopping centre and Forrest Chase.
“Overall most of our centres are maintaining last year’s figures or slightly above, they are mostly trading somewhere between 2 and 5 per cent (growth) and this year is weaker than it has been previously,” Ms McKenzie said.
“In WA we have definitely been cushioned from the worst of the economic crisis, people have got into this business of saving money and that will turn when consumer confidence is there.”
The strength of the food market was indicative of the strong movement of money away from fashion and homewares to experiential purchases, including restaurants, travel and beauty.
The resilience of the holiday markets and consequently travel agents has supported niche retailers such as outdoor wear specialist Kathmandu, which reported a 24.5 per cent jump in its total sales for last financial year.
On the upside for the suburban precincts, the spending shift is potentially delivering more sales to the metropolitan centres as consumers swap big household acquisitions such as televisions and sofa suites for smaller feel-good items like haircuts and holidays.
“When the confidence was really high and people were buying really big items, some of those things were not found in shopping centres,” Ms McKenzie said.
“So now people are not looking at big consumer items and more at experiential things … shopping centres can benefit greatly from that.
“People are looking for value but that’s not necessarily the lowest price, it’s what they determine to be a mix of choice, service, price and experience.”
The success of the Apple brand in this tough market reveals the power of a strong brand – a unique product and finely honed service strategy.
The Westpac data singled out smaller retailers as some the best performers in the discretionary sector, part of the retail market where individual shops have differentiated themselves through good service and frequent renewal of their visual merchandising.
A crucial element of the retail experience is the look and feel of the shopping centre. The top-ranked centres in the WA Business News ‘Book of Lists’ data reveals WA’s biggest centres have all undergone frequent extensions or redevelopments.
And a number of Perth’s biggest centres, including Whitfords and Midland Gate, have put forward proposals for further, major redevelopments to ensure they have the capacity to leverage any future upswing in consumer confidence and spending.
Customer service and renewal are areas where the two major department store chains appear to have foundered.
The poor sales performance of David Jones and Myer is directly connected to customer service, according to some retail analysts, which has raised questions about how vulnerable the department store model is to volatile trading conditions.
Enex100 owner ISPT’s WA portfolio senior marketing manager, Gill Collins, said successful retailers understood shopping was about more than just a transaction.
“People are looking for something beyond a purchase, quite often what motivates you to go shopping is an event or need … and if you want to stand out you need to offer something that almost forces someone to come and shop with you,” Ms Collins said.
“They perceive that the experience of shopping with you is worth so much more than just the end result, which is the purchase, and that’s why you get Apple, who understand what their customers want.”
Ms Collins sees big opportunities for WA retailers that can get the service model right.