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Retail Armageddon? Why NZ is not America

Global headlines are purporting the end of bricks and mortar retail.

U.S. commentators are leading the charge, plagued in their own country by mall over-development. In fact, America’s mall space has become so overdeveloped that Credit Suisse forecasts up to 25% of American malls will close by 2022.

The psyche of this supposed retail Armageddon has unfortunately spread to global markets – the supposition being that if it is happening in America, it must be happening everywhere.

This is simply not so, and New Zealand is an excellent case in point.

According to the International Council for Shopping Centres, the U.S. has four times as much mall space per capita than New Zealand. With one quarter of the mall space per person and the prospect of very limited development of further space, the New Zealand market is much more balanced.

And that’s just as well because over-supply is just one part of the problem in America. The challenge all markets are facing is increased e-commerce competition and a failure by some retailers and landlords to respond to evolving consumer trends.

We cannot ignore the rise of e-commerce, nor the fact that consumers have been switching to omni-channel shopping habits for the past decade.

E-commerce is a global phenomenon and has been for many years. In some cases, it will win out against traditional retail. Books, music, DVDs and travel have all shown their innate vulnerability to e-commerce and digitisation.

According to the U.S. Census Bureau, e-commerce sales in the second quarter of 2017 accounted for 8.9% of total sales in America (and Amazon accounted for around 43% of that). E-commerce in New Zealand is even higher – estimated at 12% of total retail sales for August 2017 according to BNZ.

And yet we have seen no wholesale closures of underperforming malls here, nor retailers going out of business en-masse.

However, retail has never been a market that tolerates underperformance, and every year we witness some retailers who simply miss their mark. This is the nature of a competitive marketplace. Recently we have seen the closure of Pumpkin Patch, David Lawrence, Top Shop, Shoe Connection and most recently, Kimberleys – but this is hardly a stampede.

Kiwi Property’s shopping centres are in demand – our occupancy rates remain around 99% because we have long been focused on creating spaces and experiences that New Zealanders want.

We accept that the sector can reasonably expect further challenge from the online retailing powerhouse, Amazon, which is due to arrive shortly in Australia. Few experts expect Amazon to open a physical presence here in New Zealand – at least in the near term – however it is anticipated that its Australian presence will dramatically improve serviceability for New Zealand customers.

Is this, then, New Zealand’s retail Armageddon? Hardly.

Some retailers have told us they prefer not only their own online channel – because it is more cost efficient and provides better brand relevance – but they also prefer an omni-channel approach, because bricks and mortar (primed with good staff), can improve interaction, engagement and spend.

Speaking at the New Zealand Council of Shopping Centres’ 2017 Retail Conference, Dr Sean Sands from Monash University, said it best: “Only one retailer can be the cheapest. For everyone else there is experience.”

New Zealand retailers and shopping centre owners have been evolving their conversation with consumers to refocus on what has always been a shopping centre’s greatest asset―its ability to connect people socially and to create a sense of belonging within our communities.

To further quote Dr Sands: “We like to touch, we like to see, and we want the excitement of the experience.”

This means that shopping centre owners, like Kiwi Property, are increasingly strengthening their mix to focus on providing more food, entertainment, personal services and community programmes. We are offering experiences that cannot be emulated online.

Our retail sector is also supported by the great shape of New Zealand Inc.

We have positive net migration, growing tourism, stable employment, low debt levels and positive demand for new dwelling construction.

New Zealand is not America and online retailing is not new. We, the New Zealand retail industry, are not running away from the challenge of online retailing. We are meeting it head on. We are working together to ensure we keep pace with consumer demand, and provide experiences that cannot be replicated online.

By Chris Gudgeon, Chief Executive, Kiwi Property