[LINK] Long ago, we would go shopping...

[Bernard Robertson-Dunn]

Long ago, we would go shopping...
Michael Evans
January 15, 2011
SMH
http://www.smh.com.au/business/long-ago-we-would-go-shopping-20110114-19r55.html

ONE name has been notably absent in the whirlwind surrounding Gerry 
Harvey and the threat of online retailing to traditional shop front 
stores: Frank Lowy.

When Harvey asked for a fair go by putting a tax on goods bought online 
from offshore, the public response was savage, attacking the billionaire 
Harvey Norman boss for greed at a time when customers are enjoying 
greater price transparency from the internet and buying power from the 
Australian dollar.

But it also shone a light on a structural shift in retailing - how 
shoppers can visit a store in person to inspect a big ticket item before 
going home and finding it as cheap as possible online. That threat 
provides an enormous challenge to traditional bricks and mortar 
retailers who require large land space in shopping centres to ply their 
wares. And if retailers' turnover falls, the pain won't just be felt by 
the likes of Harvey, it will also be felt by the landlord.
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Lowy's Westfield is arguably the most powerful commercial landlord in 
Australia. Typically in Australia, rents are based on a percentage of 
turnover at the store. Tenants provide their sales turnover to the 
landlord so the shopping centre operator can track the performance of 
the centre.

While landlords are not allowed to use the figures to calculate rent, 
the likes of Westfield would be increasingly aware of their tenants' 
ability to pay ever-increasing rent that deliver growing returns to 
shareholders.

As Westfield pores over turnover figures to see if its tenants are 
meeting expectations, it would be only too aware of a new threat to the 
non-internet retailing model.

The intensity of Harvey's complaints shows the threat of online 
competition is real. Certainly the response from consumers suggests they 
are enjoying getting one back on the billionaire. Russell Zimmerman, 
executive director of the Australian Retailers Association, acknowledges 
the threat of online shopping. ''The answer is yes, there is concern 
felt by retailers at the shift in the way business will be done. There 
is definitely a shift in retail.''

What's doubly troubling for Westfield and other landlords is that 
Australian retail rents are among the highest in the world. Sydney, for 
example, is the world's second most expensive city for retail rent, 
according to CB Richard Ellis's latest Global Retail MarketView released 
in November.

Sydney jumped a notch after the opening of the Westfield mall in the CBD 
last year. It ranks above London, Paris, Hong Kong and Tokyo and behind 
only New York. Three Australian cities rank in the top 10 most expensive 
retail markets in the world with Brisbane at nine and Melbourne at 10.

That means Australian retailers are paying a bigger percentage of sales 
to landlords than in other markets, a fact that may go some way to 
explaining the perception among consumers that prices in some categories 
are high.

The destructive power of a structural shift to digital technology in 
other industries is impossible to miss.

When the internet began eating into media companies' earnings the rot 
quickly set in. In property and retail, it may well be slow burn and 
arguably there are goods and services shoppers who would only ever buy 
in person.

But will landlords prove any more ready than media companies?

Zimmerman notes shoe retailers in particular are already suffering. 
Shoes can be easily tried on at a store before a shopper goes online to 
find the exact model and colour elsewhere in the world cheaper. Online 
operations looking for market share often absorb delivery costs and 
provide free or subsidised postage.

Two years ago, Nordstrom, the department store chain with more than 100 
shops in the US, expanded its website so shoppers in 30 other countries 
can buy its merchandise online. This move allowed the chain to capture 
market share without investing in more stores.

In the US, online retail sales are expected to grow 10 per cent each 
year for the next five years to account for 53 per cent of all US retail 
sales by 2014, according to Forrester Research.

Where retailers are not making profits they won't rent the stores in 
shopping centres. And certain big ticket categories will be more at risk 
than others.

Retail tenants have been sucking the lemon and paying ever-increasing 
rents because our economy has been growing for years. Of late, retail 
sales have been anaemic and retailers have begun bleating. Now add a 
dose of structural change to the rental debate and stir.

While it was not a likely scenario here any time soon, Zimmerman points 
out the experience in the US in recent years to parts of shopping 
centres becoming ''ghost towns''.

''Yes, there is a concern by retailers that there's a shift in the way 
business will be done. There is definitely a shift in retailing. The 
problem is growth and what the growth will be like,'' Zimmerman says.

Westfield has added an online leg to its mall operations, acting as a 
portal for its retail tenants as it tries to keep a slice of their 
turnover before facing being cut out as shops build their own direct 
online presences.

While the shopping mall giant may be feeling the cyclical effect of the 
US downturn, structural shifts to new technology, as media companies 
have learnt, mean some sales may never be recovered.

In the US, a depressed economy means consumers are motivated to find the 
best offer possible.

Here, exchange parity with the US dollar appears to have given online 
shopping an almighty boost.

Years of perceived gouging by major retailers has only added to the 
momentum.

Investors will now be looking for clues to the global trends in retail 
rent prices as a result of online shopping growth. Any sign of weakness 
could be an investment opportunity to bet against the likes of Westfield.

In reality, the bricks and mortar shakeout has only just begun.

-- 

Regards
brd

Bernard Robertson-Dunn
Canberra Australia
email:	 brd at iimetro.com.au
website: www.drbrd.com