The number of empty shops has leapt in recent months. Retail analysts predict the worst is yet to come and this country could face the same 'death of the High Street' that is plaguing retail in Britain and the United States. Aimee Shaw reports
If your local shopping centre is already dotted with empty stores, get ready: it's likely to get worse.
Central business districts and suburban centres are facing a rise in the number of vacant retail sites, and that number is expected to surge as the economic downturn hits and Covid-19's impact drags on.
As consumers stay home and do more of their shopping online, retailers are looking to reduce their bricks-and-mortar footprints.
At the same time, an expected surge in business failures over the next year is likely to result in more shops closing their doors for the last time.
In Auckland, for example, even before Covid-19 there were already some suburban towns - Browns Bay, Panmure or Ōnehunga, among others - where the main shopping strip had a sprinkling of empty stores. But the pandemic means this trend is now likely to accelerate - more empty shops, and potentially staying that way for longer.
And the economic outlook doesn't encourage new store openings - unless you're a big international brand with deep pockets.
In Britain, the "death of the High Street" is a well-known issue, and one that was under way long before Covid-19.
New Zealand could face the same deserted shopping strips in some provincial towns, if these areas can't find a new purpose. Town centres without large employers nearby could be worst-affected, but so could bigger city centres with large workforces, if many of those people decide to keep on working from home.
Chris Wilkinson, managing director of consultants and planners First Retail Group, says Britain's High Street is comparable to New Zealand's regional and suburban town centres.
But unlike Britain, New Zealanders still do most of our shopping in stores rather than online. There, the traditional catalogue-book style of shopping is now dominated by e-commerce orders and the likes of Amazon.
While New Zealand will see more empty shops, says Wilkinson, things will be nowhere near as dire as they have become in parts of Britain. And he believes the move to flexible working could even have a positive impact on suburban shopping areas.
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In one town centre in northern England, where First Retail Group is working with a regional council to develop new retail growth strategies, a single post office received three tonnes of mail in one day - mostly Amazon packages.
"Amazon has been one of the biggest challenges to the High Street in the UK because it is the number one go-to for consumers," says Wilkinson. "It has become a barometer and people check out Amazon before they go anywhere else."
New Zealand consumers are far more interested in shopping local, he says.
Data from OneRoof, owned by Herald publisher NZME, shows a large increase in the number of unfilled office and retail leases nationwide since April, when the country was in the first week of a lockdown that closed non-essential businesses.
There was also a big rise in the number of new commercial retail leases available in Auckland between April 1 and July 31 - up 37 per cent on the same period last year, with 83 per cent of the 1294 listings still active as of August 10.
Vacancy rates are not likely to peak until mid to late next year, says real estate organisation Colliers International.
Chris Dibble, research and communications director with Colliers International, says the amount of vacant commercial property in New Zealand is higher than the company had projected.
Its latest survey shows the vacancy rate has increased from a record low of 4.7 per cent in December last year to 6.3 per cent as of June.
Wilkinson says big retail chains have already begun to rationalise their store portfolios, such as The Warehouse and Michael Hill, which have been closing branches and encouraging shoppers onto their upgraded online sites or into their bigger stores.
"We're seeing what we call consolidation and regionalisation of brands," he says.
Retail NZ chief executive Greg Harford says there are serious issues in retailing on the street and in shopping malls, driven by "collapsed" sales for many businesses.
"Particularly in towns and town centres where there is not necessarily a lot of foot traffic, some of these centres will be on life support, if they're not dying," says Harford.
"Those that can continue to operate are really in an interesting position because we've seen such a big jump in online sales and customers have moved online in a big way. That means it is harder to justify the maintenance of those bricks-and-mortar stores."
Retailers' confidence slumped in August following a return to level 3 lockdown in Auckland, says Retail NZ.
Total sales over the last six months remain 6.4 per cent down compared to last year.
Retail NZ now believes 10,000 retail businesses are at risk of shutting down over the next year, an increase on its initial forecast of 6000 in June.
Harford says town centres had already become more focused on services and hospitality, but this is likely to increase as more shops close.
He says high streets and shopping malls alike are likely to face long periods - years in some cases - of empty shop fronts.
"There's real potential for hollowing out of our town centres and for there to be quite a large number of empty shops around the country for quite a long period of time because the impacts of this Covid recession are likely to last a number of years."
It took retailing six years to recover from the 2007-08 global financial crisis. Covid-19 has already had a far worse impact and it will take the industry much longer to come back, says Harford.
"At the same time, we've got the depressionary environment; we're also seeing a structural shift in how people are shopping, which means there is less value in those bricks-and-mortar stores."
"Once you've embalmed a town centre you can't ever get that life back again."
Physical stores are costly to maintain, rents are typically rising faster than sales and the trend towards fewer stores in each retail chain has been exacerbated by the pandemic.
Through his own consultancy company, the Wellington-based Wilkinson is working with some regional councils on a plan for how they can "strategically consolidate town centres".
Town centres are no longer fit for purpose, he says, with too much retail space which is likely to be converted into apartment blocks and offices.
"The secret to success of our town and suburban centres is to get more people living or working within these areas - and that's not going to come from retail, that's going to come from the likes of educational and health uses."
Wilkinson says New Zealand could begin to see more suburban offices using vacant retail spaces. "Instead of having this endless row of stores and [they're looking] at shrinking town centres so they are much more walkable and accessible. Those fringe areas that were once populated with stores and have lesser foot traffic now are much more suitable for conversion into apartments or elder-care facilities."
There is no longer the same level of demand for consumer-facing businesses in these areas, and hasn't been for quite some time due to e-commerce, he says, which is why we are seeing a "fragmentation" of town and city centres. "We've got too much space on offer.
"There's this historical assumption that we needed to have a huge amount of retail space, but retail has changed and those channels have changed. People are buying more online and going to big box stores."
This issue is on the radar of "every council in New Zealand", says Wilkinson, adding that work on repurposing centres had begun early so things won't slip into a UK-style "death of the High Street".
"We are in a position where we can be proactive to ensure it doesn't happen, but it does rely on councils working collaboratively with property owners," he says.
"Once a town centre dies it is easy to resuscitate. But once you've embalmed a town centre you can't ever get that life back again."
The work from home effect
Wilkinson says suburban town centres have been the surprising winners following the move to working from home and flexi-working.
"That's putting a lot more daytime audience into these town centres, and we're already seeing that in terms of spending increase.
"Suburban centres are seeing a renaissance in benefit and that's happening across New Zealand."
Massey University professor of retail management Jonathan Elms says some "unique" and "interesting" things are happening in the industry, and a lot of the larger cities are experiencing the biggest reduction in foot traffic.
He agrees that the regional suburban centres will experience a revival as major city centres find it tougher.
"We'll probably see more and more vacancies in the larger cities and the CBDs, whereas the more regional-type shopping centres and streets will probably have a little bit of a revival as more people shop effectively locally," says Elms.
"It's a bit of a revival for the regionals but it will be a bit of a sorry state of affairs for the bigger areas."
Elms says it is likely that more service-based business will fill vacancies as traditional retail offerings shut up shop.
Big retail chains that once had stores in suburban town centres could also make a return to regional areas.
"Because of changing alert levels and because more and more people are shopping online and they are getting the appetite for it, how they shop and their expectations of physical stores is also changing.
"I think we're going to see the bigger players move out of town shopping centres to more localised areas. They will be much smaller stores than we're used to."
But Harford says the increase in suburban retailing is not offsetting the losses in central business districts.
Even before Covid-19, town centres' retail tenant mix was already changing, with less retail, and service-based businesses filling the gaps.
"The idea of being able to buy apparel in some of these areas is disappearing and we're seeing those businesses be replaced with services, for instance cosmetic beauty and laser clinics, hearing centres, health and wellness-type operators," says Wilkinson.
"We're seeing a shift from what was traditional retail - butcher, baker, candlestick makers - to the likes of health and wellness, food and beverage and neighbourhood bars."
Harford says empty shops and second-tier retailers moving in and then out of an area are signs of a town that's not doing so well economically.
The outlook for retail next year is uncertain, he says, and how significantly it is hit by store closures and business failures will depend on when the border reopens, and how many workers return.
But Elms believes the retail recovery will be faster than most anticipate. Buoyant house prices and consumer demand are indicators of this, he says.
"Consumer confidence obviously has taken a knock, business confidence has taken a knock, but the housing market is definitely a good indication of the overall state of the nation's psyche," Elms says.
"Yes we are in a recession, but it's not a natural recession; it's a very discontinuous event that we're facing, and there's still appetite for consumers and still appetite for businesses to grow and do bigger and better things.
"It is going to be very hard for businesses over the next six to 12 months but it will be an easier recovery than it would be from a general recession."