Retailers must adapt to the changing business world in order to survive. Photo: John Woudstra
CHARLES Darwin may not have been much of an investor but he’d be pleased at the way his theories have been applied to modern business. Successful businesses adapt to change and evolve. Those that don’t become extinct.
Given the challenges and opportunities thrown up by the rise of the internet have been obvious for the best part of a decade, the sudden panic from local retailers as they belatedly rush to embrace online makes you wonder.
After more than a year of uproar from the likes of Gerry Harvey, the rationalisation at Dick Smith, the problems with JB Hi-Fi, the collapse of Borders and Colorado, fashion chains suddenly have found themselves in the firing line. Solly Lew’s Premier Retail is desperately trying to remake itself and yesterday it was Speciality Fashion Group’s turn. A 64 per cent slump in earnings was accompanied by plans to shut 120 stores in the next three years and a pledge to boost online sales.
Admittedly, the online threat to traditional retailers has hit with a bang. Consumer attitudes, and with it behaviour, shifted rather suddenly after the near-recession in 2008 when debt repayment took precedence over consumption. Suddenly, everyone began looking for a bargain. But far more than a mere price differential is at work. Over the past decade, online retailers have honed their distribution networks, offering consumers a home delivery service for a vast array of goods – everything from electronics to underwear – at a fraction of the normal retail price and all with click of a button. As an offering, it is just too good to refuse.
Last year, traditional retailers were crying foul. Cheap offshore groups were avoiding the 10 per cent goods and services tax and thereby undercutting the locals, they cried. But the big point of difference is far more fundamental. It is real estate, or rather the lack of it.
Where traditional retailers operate vast chains of stores in lavish emporiums at enormous expense, their online rivals work out of a single warehouse in the backblocks of a Chinese satellite city or somewhere in middle America.
That then prompts the question: What of those lavish retail malls, those massive monuments to consumerism that have sprung up around Australia and the developed world over the past 30 years?
If established retailers need fewer shops, and smaller areas for those premises they keep, it stands to reason that at some point down the track, mall owners will come under pressure from falling occupancy rates and lower rents.
The Lowy family, the force behind Westfield, the world’s biggest mall owner, seems unperturbed by the forces buffeting their industry. Last week, Steven and Peter Lowy exuded confidence in the future of the model, arguing that as one chain departs, another lines up to fill its space. Perhaps.
Suspicions about the super-mall model have been weighing on the minds of investors for five years, which in turn has weighed down the Westfield share price. It has lifted in recent days, partly because of a welcome lift in earnings, but mostly as a result of the company selling off a large swag of assets.
Westfield patriarch Frank Lowy’s great gift has been to identify trends early and capitalise on them. He was operating a Macquarie infrastructure model years before anyone at Macquarie ever thought of it. And he folded the model years before Macquarie almost came a cropper on the failed experiment. That he has decided there is more money in developing and managing – rather than owning – malls speaks volumes.
So far, there have been no real sign of a big rise in vacancies at the malls. But once bustling areas in nearby shopping strips clearly are under stress as For Sale and For Lease signs dot the streetscapes.
A look at sales by store category within Westfield’s Australian malls paints a picture of rapid change. Department store sales were down 7.5 per cent in the past 12 months while fashion, footwear and jewellery, and cinemas were off. Food, however, was a major growth area with supermarkets, catering and food retail all up.
Defenders of the mall model reckon the likes of Specialty Fashion, Premier Retail and even Billabong all suffer from the fickle nature of fashion – that they simply have outlived their trend-topping status. That may be so, but the trend to online shopping is accelerating and the rise of smartphones and the applications to which they can be put will further reduce the need for physical floor space.
A smartphone can now access a code on a billboard or in a magazine to deliver a full shopping experience.
It would be a foolhardy forecaster to predict that shops, emporiums and malls will become extinct, that our city precincts will end up abandoned canyons. Regardless of technology, human beings are social animals. They crave interaction and demand personal service, something that cannot be delivered by machine. Yet the fact is the manner in which we shop, and the way in which goods and services will be delivered is changing rapidly and that those who fail to adapt will not survive.
