Colliers: Retailers need to embrace disruption

Colliers: Retailers need to embrace disruption

2 June 2017

Daniel Lees, Research Director for Colliers International writes that “retail assets within the direct property sector remain attractive from an investment perspective with transaction volumes only restricted by market stock levels.”

The Colliers report also looks at the expected impact of online retailers such as Amazon, Kaufland, and the UK-based Topshop and Topman. Lees writes that “this has created headwinds for some domestic retail organisations where outdated strategies have failed to keep up with the increasingly competitive environment and rising consumer expectations. We expect there will be more pain to come, and lending institutions will no doubt be monitoring the loan covenants of domestic organisations operating within these disrupted retail sectors.”

Of course, some retailers will successfully embrace the challenge of this disruption in the market through product differentiation, experience, service or expertise.

Australia’s shopping centre landlords are closely monitoring the challenges faced in the retail industry, and many have been quick to adapt. Competition with new online entrants based only on price is unlikely to be a viable strategy, but they can differentiate on experience, service and atmosphere. This explains their very deliberate move into high-end food offerings and lifestyle-orientated services.

Regional centre owners and managers have successfully curated an optimal tenant mix and provided a positive customer experience only available in-store. Colliers acknowledged that specialty sales growth has been moderating, even though in some instances growth has shifted to other categories such as mini-majors or hospitality offerings. Meanwhile vacancy levels have been dropping across the board, and it seem likely that landlords will need to keep innovating in order to remain relevant in their communities.

Ultimately the consumer looks set to benefit most, as the new playing field sees lower prices and the bricks-and-mortar retailers will need to keep improving experience and service. And excessive profit margins will have to come in line with global standards.

Australian consumer sentiment remains positive, which explains why offshore retailers have been interested in entering the market over the past few years. We have a growing high-income population, concentrated in a small number of capital cities. Internet penetration is also high, and many Australians have developed a strong appetite for global brands and fashion.

Read the full report here.