Testing times ahead for retailers as more global brands set up shop
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."
Frequently Asked Questions about this Article…
Analysts point to a mix of cyclical and structural factors: a shift by consumers into higher household savings, ongoing growth in online purchases, and an influx of international brands increasing competition. JPMorgan retail analysts Shaun Cousins and Uma Joshi say these trends will continue to buffet the sector and push consumers to focus more on value.
The article says H&M is tipped to secure a Sydney site in the coming months and Finnish label Marimekko has opened a Sydney flagship at 66 King Street. Other notable moves include Telstra creating a linked flagship near the Apple Store at 396–400 George Street, and a number of new developments aimed at flagship retail space such as 333 George Street (Charter Hall), 20 Martin Place (Pembroke) and redevelopments at 120 Pitt Street (Cbus and Commonwealth Property Office Fund) and 190–200 George Street (Mirvac).
The report warns that more international entrants will raise the competitive bar for domestic bricks-and-mortar retailers that previously faced modest competition. That pressure should drive improvements in customer experience, but it will also contribute to sector consolidation as competition intensifies.
JPMorgan analysts expect online retail to continue gaining market share within the sector, driven by advantages in price, range, convenience and fulfilment. The article notes online could account for about 10–15% of the market in five years and may account for much of the sector’s growth.
Consumers are shifting toward savings as household balance sheets are repaired after a long borrowing cycle, and fears of unemployment are diverting cash away from discretionary spending. That trend means shoppers are increasingly value-focused, which is putting pressure on retailers to offer better value or experiences.
New redevelopments and purpose-built flagship spaces—such as projects by Charter Hall, Mirvac and owners of 120 Pitt Street and 20 Martin Place—are designed to attract high-profile international tenants. For property investors and landlords this can create leasing opportunities to premium tenants, but also increases competition among retail sites and raises the need to improve customer experience at ground-floor retail.
Yes. The analysts say a more sophisticated consumer is shifting spending toward experiences—led by innovation in food and continued interest in travel—while traditional retail innovation is comparatively modest. Retailers that can offer experience-led shopping or better value may fare better as consumer preferences evolve.
Based on the article, everyday investors should watch: the pace of international brand entry and flagship store openings, online retail market share growth (forecast at roughly 10–15% in five years), consumer savings and value-seeking behaviour, and signs of sector consolidation. These themes help explain where pressure and opportunity may emerge within retail and retail property.
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