Web stores threaten retail property

Rialto Cinema on Broadway. Photo / NZ Herald

Surge in online shopping requires a smarter approach from retailers to keep 'brick and mortar' outlets viable.

The volume and value of online retailing is likely to have significant impacts for the retail commercial property sector, says Bayleys Research in an overview of the Auckland retail property market.

Bayleys quotes a report by PricewaterhouseCoopers and Frost & Sullivan which estimates the value of online shopping in New Zealand will increase from about $3.2 billion last year, representing 5.9 per cent of the country's total retail spend, to about $5.4 billion in 2016 - for a compound annual growth rate of 14.3 per cent.

It also cites a recent Horizon Poll of 2425 New Zealanders which found that 14.6 per cent of adults with internet access are looking at items in stores then buying online - a practice now known globally as "showrooming".

Sarah Davidson, research analyst for Bayleys, says the implications of showrooming for traditional retail premises, as well as distribution channels and hence warehousing, could be significant, taking just-in-time stock management to a new level.

Consumers will expect more retailers to have both a physical and an online retail presence, she says.

"Showrooming is unlikely to be the end of traditional 'bricks and mortar' retailing, but it will mean that tenant demand for retail premises is likely to change," says Davidson.

"It will require retailers to think about how they can maintain a competitive presence in the retail environment, with higher overheads than their online-only counterparts."

Mike Donovan, director of international fashion retailer Wild Pair and Lippy, says a multi-channel business strategy is essential to maintain a competitive edge.

Increased online competition has forced a rethink on physical stores. Over the next two years the chain is likely to reduce its outlet numbers, focusing on having fewer but larger and better-performing outlets in regional hubs, he says. Access to the retailer's website is available in all outlets, allowing customers to purchase an item online if the desired size or style is not available.

Davidson says the reasons for people shopping online are numerous, but by far the most common is that prices are lower than they are in a retail outlet, appealing to a savings-conscious population. The continued strength of the NZ dollar means that international online retailers have become increasingly competitive, purely from an exchange-rate perspective. This is helped by the increasing number of retailers offering free global delivery.

"Furthermore, the GST-free threshold for purchases offshore - the minimum purchase value before GST is applied - is $400, so any purchase made below this value is essentially tax-free, further enhancing the value for the online consumer.

"This makes for an uneven playing field ... when trying to compete with pure-play retailers."

The key benefit for in-store retail is instant access to the product once purchased, says Davidson. This should be emphasised as a point of difference by retailers, particularly those in direct competition with web-based stores.

In an effort to combat showrooming, international retailers such as David Jones and Target offer a "click-and-collect" online purchase and in-store pick-up service.

"The retail sector is not without its challenges as the global village becomes even more accessible for consumers," says Davidson. "As with any sector, it will be those retailers that recognise the changes early and adapt that are best able to survive".

Survey

Auckland retail property market
Undertaken by: Bayleys Research
Reveals: Big increase in online shopping
Effect: Threat to "bricks and mortar" retailing.