Testing times ahead for retailers as more global brands set up shop
RETAILERS are bracing for an even more challenging year as the doors open on another flood of high-profile international labels and consumers search for online bargains.
It is doubtful that a drop in interest rates will help, as fears of unemployment continue to force a diversion of cash into household savings.
The European group H&M is tipped to secure a site in Sydney within the next few months, while Finnish retailer Marimekko took over 66 King Street last year as its Sydney flagship store.
And a number of new developments are aimed at providing the appropriate flagship stores for international retailers, all of whom want to open with a flourish.
These include 333 George Street by Charter Hall, which was approved by the Central Sydney Planning Committee in December last year. The committee also gave Pembroke, the new owners of 20 Martin Place, approval for renovations while the joint owners of 120 Pitt Street - Cbus and the Commonwealth Property Office Fund - will look to lease the former bank chamber space.
Mirvac's 190-200 George Street has also been the given the green light for redevelopment. Ernst & Young will be the anchor tenant with restaurateurs and retailers vying for the ground-floor area.
Alex Alamsyah, the director of retail leasing at Knight Frank Australia, recently relocated the Mick Simmons sports store from 476-478 George Street, while the owner of the building, Amalgamated Holdings, redevelops that site.
Telstra, on the corner of George and King streets, has taken over the former Darrell Lea Chocolate store at 396 George Street and plans to link its existing store at 400 George Street with that site to create a flagship store opposite the Apple Store.
But the reshuffling and new entrants will only put more pressure on existing retailers, according to analysts.
JPMorgan's retail analysts, Shaun Cousins and Uma Joshi, have warned that cyclical and structural factors such as a higher rate of savings, online purchases and international entrants will continue to buffet the sector.
In a research note to clients, they warned there will continue to be a broader shift to savings by the consumer as household balance sheets are repaired following a 20-year borrowing cycle.
"The more sophisticated, discerning and demanding consumer will continue to focus on value," they say.
"This is driving a shift to experiences given the ongoing innovation at food, the continued interest in travel, and the comparatively modest level of innovation at retail.
"Online retail will continue to gain market share within the retail sector ... driven by the attractive customer experience [price, range, convenience, fulfilment]."
In five years, online could account for 10 to 15 per cent of the market and much of the sector's growth.
"The number of international entrants is expected to increase, raising the competitive bar for domestic bricks-and-mortar retailers that have previously faced only modest competition," the report says.
"This will see an overall improvement in customer experience from domestic retailers, while also assisting in sector consolidation."