By Peter Sheppard
Head of Implementation, Retail Doctor Group
For decades now, since the start of shopping centres, rental levels have been based on the affordability of retailers, and therefore, the combined metrics of sales and gross profit generated by that location decided the rental level and was agreed on by way of a lease.
It was therefore in the landlords’ interest to drive foot traffic to the centres, which in turn improved retailer’s sales and their ability to grow sales and pay increasing rent. This worked for both parties as marketing efforts by the centres kept the traffic numbers increasing.
However, two things have happened over the years. Marketing efforts and traffic-driving marketing by major landlords appear to have significantly diminished; despite retailers paying a marketing levy, and centres have continually increased the floor space, and with it the competition for retailers.
It is not uncommon to see a shopping centre re-development increase lettable area by say 40%, but year on year foot traffic only increases by circa 20%. This effectively has, in this example, the effect of reducing sales in the stores that traded prior to the re-development by 20%.
Now, in the last number of years, and accelerated by the Covid-19 pandemic, the percentage of sales moving online has further accelerated this scenario for physical shopping centre retailers. Many retailers have instigated some form of online sales and generation of digital sales and, depending on the category, are now generating between 10 and 20% of their sales through the various digital media.
There is a debate looming whether these sales belong to the store’s sales. Shopping Centres landlords are, of course, claiming that these sales need to be included in the reporting by stores, while retailers are saying no; they are a separate business, with their own costs such as freight and packaging etc.
To complicate matters further, if a store sells via a click and collect means, where should these sales be recorded, in-store or online? The same applies to the fast-growing home delivery service.
The interesting point is this: How many of these sales would occur without there being a physical store or, conversely, without a digital omnichannel offer?
The pure-play digital retailers such as Kogan, eBay, Temple and Webster will claim it is not necessary to have physical stores to effectively market their products and, in many cases, this is true, with really strong growth in these businesses now evident. This happens despite the entry of numerous other sites such as Amazon, Wish, Catch to name a few, and who are all showing huge sales growth.
Are these additional sales, or are they taking away from physical stores?
At the same time, we are seeing major retailers such as Super Retail Group and JB HI-FI recently announcing online sales increases of 74.1% and 161.7% respectively, in the last six months, while in-store sales being about stagnant.
With all the evidence that consumption is moving online, where does this leave the traditional shopping centre-based retailers? There are a couple of strong pointers that they will need to embrace digital-related measures on an increasing basis if they are to survive. These points are:
- Make sure your online presence is more than just a website.
- Get involved with broadening your exposure through social media and connecting with your community
- Offer the convenience of click and collect
- Offer the wanted payment methods (Afterpay, Zip, contactless payment etc.) and make sure that all the sales processes are seamless
Your accounting methods do not matter to the consumer, but if your systems and processes are hard to navigate, consumers will switch to easier options. Tolerance levels with inefficient processes are low.
Change is certain, embrace it and try to be ahead of the curve, no matter how fast it is moving.
Have you reviewed and renewed your short-to-medium term retail strategy? If you have not done so in the last 6 months, your strategy will almost certainly be out of date and missing the mark. Retail Doctor Group has the latest local and international retail trend information to assist you to develop an appropriate and curated strategy for your business.
In all the time Retail Doctor Group has been in business, we have never seen the retail goal posts move more radically or quickly.
Peter Sheppard is Head of Implementation at Retail Doctor Group and can be reached on 0414321545