Disruption: Coming to Australian retailers

Australia’s retail industry is undergoing a period of significant change, as established retailers are forced to evolve to survive, according to the latest retail research Game On: Retail’s new entrants flex muscle as competition grows. 

“Australia’s retail industry has been heavily concentrated and characterised by fierce competition between a few established players,” said Colliers retail head Michael Bate. 

“Our industry is undergoing an unprecedented period of disruption, as these established players have been forced to evolve to meet the changing demands of the consumer and revive profitability.

"These changes are opening up new opportunities for the many emerging brands in Australia, who are looking to gain a foothold in an established and well-heeled market.”

According to the research, two retail segments which have undergone significant disruption are the supermarket and department store sectors. 

“The purchase of David Jones by the South African- based Woolworths chain last year has prompted a period of significant change,” the report’s author, Colliers associate research director Daniel Lees, says. “Under its new ownership, David Jones has undergone a transformation, and it is looking ahead at new opportunities, such as fresh food. At the same time, Myer has been forced to revitalise its offering to stay competitive.”

The impact on the retail property sector as a result has been significant. Myer has decreased its property footprint in several key areas, such as Top Ryde where it is withdrawing completely. In other centres it is reducing its footprint. 

“Myer and David Jones have been two of our most significant retail occupiers for decades,” Mr Bate says. “They have controlled a huge portion of the most sought-after, highest visibility retail space across the country.

With their rationalisation of space comes a huge opportunity for the emerging brands to establish themselves in well-located retail spaces with good foot traffic and exceptional visibility.”

Aldi, which has been in the Australian market for more than 10 years, has expanded rapidly in recent times as such opportunities have arisen, with a current estimated market share of 11%.

Likewise, there is speculation global supermarket giant, Lidl, may enter the Australian market, and sourcing appropriate floor capacity will be crucial to their entry strategy.

Having taken some of the low-hanging fruit to improve sales at David Jones, Woolworths Holdings SA now sees the need to invest substantially more money in the business to build out offerings such as fresh food.

To fund this investment, it’s possible David Jones could realise significant funds by rationalising its property portfolio in Sydney and Melbourne CBDs, potentially raising up to A$1 billion if air rights are fully exploited.

The sale may result in at least a partial leaseback of space from a buyer but this strategy does open up prime availability to new market entrants. 

 “Our retail landscape has changed significantly in recent years but that’s nothing on what we’re going to see in the coming years,” Mr Bate says. “The march of international retailers into our country is nothing new, but the second, third and fourth wave of these will continue to come.

Australia’s savvy consumers know these global brands, making their move into the Australian market an easy one.”

Brands such as H&M are only making the move into the Australian market when the right floor space opportunity comes up. H&M’s new Sydney CBD store, in Pitt Street Mall, spans 5000m² and has strong visibility in a high traffic area.

According to Mr Bate, such global retailers will form an important part of the future retail landscape. 

 “Only 10 years ago, our major department stores occupied tens of thousands of square metres in our CBDs, limiting the options for other retailers. These department stores are now savvier with their space, and embarking upon multi-channel strategies to appeal to changing consumer needs.

This is opening up our retail industry to new players, and providing our consumers with an increased choice.” 

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