The changing face of the retail market

By Bruce Engeman

The retail property market is dynamic and always changing. Do you know what is happening in yours? 

We are seeing a number of significant changes in the Australian retail property market of late. There are also a lot of changes going on with local and new international retailers in our market that are going to directly impact pharmacies across Australia.

You need to be constantly aware of what is happening in the marketplace and how it will affect your business. You can then take advantage of such opportunities, as well as plan for any potential downturns in trading.

Dynamic market

The Australian retail property market is always changing. For example, Borders and Collier’s bookstores are no longer in our market. Retailers of film processing, vinyl records and DVD rentals have all but gone while coffee shops and mobile phone shops continue to grow.

Changes: beauty 

There are many changes going on in the $3 billion-a-year beauty industry. The products, which have usually been sold in pharmacies, are now for sale in chain stores and supermarkets. There are several larger-scale operators coming into the market, such as Mecca Cosmetica, which opened its first store in 1977 in Melbourne.

Jo Horgan, who founded the business, currently has more than 60 stores across Australasia – they opened 14 stores last year and intend to open 10 more by the end of this year and intend to simply keep on growing. Brands such as the L’Oréal-owned Kiehl’s, along with the Estée Lauder-run Jo Malone and Mac brands, already have a strong presence in Australia and want to expand further.

Sephora, which is the largest beauty retailer in the world, wants to establish a strong presence in Australia. It has a wide range of international and niche skin care, make-up and fragrance brands, and its private label range accounts for 40 per cent of its sales.

New international retailers

Sephora is just one of many international retailers coming into Australia. Apple now has more than 20 very successful stores here and its success continues to be absolutely staggering. They are having a huge impact on local retailing and major landlords are still fighting each other to get them into their centres.

Japanese company Fast Retailing is having a significant impact on Australia with its Uniglo brand, which will have six stores open in Australia by the end of this year. Uniglo is the changing face of casual apparel in Australia and want to become the market leader in casual wear by 2020. It is also putting pressure on discount department stores such as Target and Big W, as well as Myer and David Jones. Uniglo competes not just on fashionability, but on quality, functionality, affordability and customer service and could end up with 20 stores in Australia in the next few years.

H&M, like Uniglo, is changing the face of Australian retail with stores in Sydney, Melbourne, Brisbane and Perth. H&M will have seven stores by the end of this year and could end up with 50 across the country. The H&M store did $65 million in sales in only its first seven months of trading at its Melbourne store.

Zara is now well established in Australian. Its first store opened in Pitt Street Mall, Sydney, in 2011 and there are now 13 stores and plans to open many more.

All these international fashion brands are impacting on the performance of David Jones and Myer. David Jones, with new international owners, is decreasing the size of its footprint and Myer is closing stores, curtailing plans for expansion.

Coles is now outperforming Woolworths and Bunnings, owned by Coles, is outperforming Masters Home Improvement, which is owned by Woolworths. ALDI is now proving to be a competitor to both Coles and Woolworths and has a new concept ‘fresh food’ store, which just opened in outer north-western Sydney suburb McGraths Hill.

ALDI has more than 382 stores and over 11 per cent of market share. Its annual revenue is now $6 billion plus. Another 150 ALDI stores will open over the next five years, with particular emphasis on SA and WA.

Information is power. Therefore, you need to know of all the changes in the retail marketplace. You should always be really well informed to ensure you are making the right decisions for your business. The changes in retail can sometimes increase centre traffic and potentially increase sales and turnover, ultimately leading to higher rental charges.

Case study: assert your position 

My clients own a medical centre in a C-grade position of a shopping centre undergoing redevelopment. They don’t really have a shop front and have been operating out of the car park. However, they have managed to develop a fantastic business over the past 19 years.

The landlord decided to downsize a David Jones department store and relocate Coles on the centre’s third level (with an additional 45 shops).

Coles will be replaced by an ALDI, and a Harris Scarfe and H&M are to be introduced into the centre, taking over part of the DJs space.

All these changes will significantly change traffic flow and dynamics in the centre. We spoke to the landlord in detail to understand the full impact of such changes.

We rejected the first position offered to us by the landlord, as this location just didn’t provide us with the best possible outcome given all the future changes.

We also shared our vision with the landlord on what we could do for the centre. If the landlord fully appreciates what you will do for the centre, then they will be more likely to cooperate and offer assistance.

References
Cummins C, ‘Forever 21 joins glamour battle’, [italics>SMH<italics] weekend edition, June 13-14, 2015.
Cummins C, ‘Battle for the beauty dollar’, [italics>SMH<italics] weekend edition, July 4-5, 2015.
Mitchell S, ‘Uniglo to target interstate growth’, [italics>AFR<italics], April 27, 2015.
Greenblat E, ‘Swedish fashion house H&M puts rivals on notice amid sales surge’, [italics>The Australian<italics], May 12, 2015.
Evans S, ‘ALDI trials new store format for Australian market’, [italics>SMH<italics], October 21, 2015.
Evans S, “Expanding ALDI speeds up revamps’, [italics>AFR<italics], October 29, 2015.