Being a dab hand at all forms of shopping, I can assure you my research for this article has been extensive. I have a bulging wardrobe and weeping wallet to prove it if you don’t believe me. These days, you just gotta go above and beyond in the name of work.
It goes without saying the internet has changed how we shop. In the time it takes to download your favourite Netflix series or waiting for your Deliveroo dinner, you can purchase almost anything, without travelling, waiting, or fighting for car spaces, and often at a cheaper price. No wonder Australian consumers spent an estimated $20.1bn online last financial year [NAB Online June Survey 2016].
What few people realise is how much online shopping has changed our shopping centres. Despite the hype, online retailing accounts for just 6.8% of the bricks and mortar retail sector, a percentage that hasn’t changed much in recent years. What has changed are shopping centres themselves, which in some cases are busier than ever.
In the year to December 2015, there were over 80m visitors to Australia’s three largest shopping centres (Chadstone, Westfield Sydney City and Westfield Bondi), 3.5 visits for every man, woman and child in the country.
At less than 1%, vacancy rates are at record lows and global brands are lining up to take space in these centres. Rents are rising and centre owners are reinvesting billions on extensions and upgrades. There isn’t much evidence of shopping malls dying: at least at the top end they’re well and truly alive.
So, how can online shopping and retail shopping centres both be doing well at the same time? Unlike the blue ribbon centres, neighbourhood or “high street” shopping has been hit by online shopping and growing specialty competition. Department stores and big box retailers are getting smaller, or in some cases closing altogether. That’s having a big impact on smaller centres where for most shoppers the aim, after finding a parking spot, is to do the weekly shop and leave poste haste.
For bigger, “destination”-style centres it’s a different proposition. The downsizing of department stores has been offset by an increase in specialty outlets where you can do a gym class, get a foot massage and a manicure before lunch at a hip organic restaurant, followed by a movie and a glass of wine. The strategy is to turn a shopping centre and the retail outlets within them from the merely functional to the experiential. And the more successful retailers are using technology to enhance that experience.
Take Nespresso as an example. Over 300,000 people visit their online shop every day, ordering coffee capsules and machines with a few swipes in a mobile app. But the real magic happens in one of their 450 global boutiques, where you’ll be greeted by elegant interiors appointed in dark moody hues, designer clad service staff and the intoxicating scent of freshly brewed coffee. The barista takes your order while you sit at the bar, scanning the range of Grand Crus. If you’re lucky (and I haven’t been, despite the long waits) brand ambassador George Clooney makes an appearance. The strategy is one of sensory overload, one so far removed from a website transaction it feels like a different, better world.
This trip into the sensorial world is one many boutique retailers aim to create, from the friendly playground feel of Smiggle and Typo to Apple’s lush, high tech interiors that feel more like a place for creative expression than a shop. To call a visit to one of these stores “shopping” as one might a trip to Big W is a kind of category error. Retailing has evolved far beyond the scanning of goods at a register.
Called the “omni channel” approach, this hybrid model combines digital and physical experience, delivering tremendous benefits to specialty chains like Nespresso and more traditional bricks and mortar retailers.
The upside for the retailer by getting shoppers into their stores is to achieve “upsales”. That is, selling a tie and a belt to go with the shirt. This is harder to do online.
Peter Alexander, the “King of Sleepwear”, has been around for 25 years, originally selling via mail order before transitioning to online. It now has more than 50 retail outlets across Australia and New Zealand. It is one of the biggest store rollouts into bricks and mortar by Premier Investments – the owner. Shoes of Prey, an online shoe design retailer recently established a concept boutique in David Jones department store in Sydney and expanded its offline presence in Nordstrom, a US department store. Even the pure online behemoth Amazon is planning to open hundreds of physical stores.
These retailers have recognised that the convenience of digital shopping and the instinctual joy of seeing, touching and trying before you buy is a powerful combination, one so strong that it is forging a new, more prosperous life for destination shopping centres.
What does this mean for investors? First, if you’re invested in destination shopping centres you don’t have much to worry about. The availability of land capital requirements and town planning restrictions make it almost impossible for competitors to build a new destination centre close to one that already exists. We’re highly unlikely to see centres like Chadstone or Westfield Bondi Junction face much in the way of competition.
Second, the retailers as much as the owners of these centres are well aware of this fact, hence the low centre vacancy rates. If you’re a top brand wanting access to millions of the country’s most valuable shoppers, you’re going to have to pay up to get it. Again, that’s good for shareholders.
Third, as department stores and what were once known as anchor tenants shrink, space is opened up for more specialty retailers, which pay more rent per square metre than the likes of David Jones and Myer. Online retailing is making these centres more valuable, not less.
And finally, future technological change is unlikely to undermine the success of mega shopping centres, which through their experiential focus and means to social connection are beginning to fulfil deeper human needs than merely filling a shopping trolley.
Unless you’re a multi-billionaire it’s impossible to purchase one of these shopping centres outright. But you can access this investment class in a bite sized, affordable portion through the APN AREIT Fund, which offers exposure to some of the largest and highest performing shopping centres in Australia. And for those looking for the same high quality assets with some geographical diversification, the APN Asian REIT Fund offers exposure to Tokyo, Hong Kong and Singapore.
Now I must get back to undergoing further retail research. Happy shopping!
This article has been prepared by APN Funds Management Limited (ACN 080 674 479, AFSL No. 237500) for general information purposes only and without taking your objectives, financial situation or needs into account. You should consider these matters and read the product disclosure statement (PDS) for each of the funds described in this article in its entirety before you make an investment decision. The PDS contains important information about risks, costs and fees associated with an investment in the relevant fund. For a copy of the PDS and more details about a fund and its performance click here. To receive further updates and insights from the APN team, sign up for Review, our monthly email newsletter.