Is Amazon the retail serial killer?
It may be inspiring fear and loathing, but Amazon’s entry into the Australian market is also an opportunity, an expert panel of industry leaders agreed during The Property Congress.
While pundits continue to predict the demise of the mall and the fall of the department store empire thanks to Amazon, a stellar line-up of panelists, led by The Australian’s property editor Turi Condon, pondered the future of retail.
“Amazon doesn’t need a marketing campaign. It’s in the paper every day,” said Carolyn Viney, executive general manager development with Vicinity Centres.
But among all the “doomsday news”, there are real reasons to be optimistic, Viney said. Chadstone Shopping Centre, the largest in the country, has seen a 20 per cent increase in footfall since last October by “remixing the product”.
“When we get it right, people respond very quickly,” Viney said. And they’ll spend accordingly.
According to Louise Mason, chief operating officer for real estate at AMP Capital, the online goliath is encouraging the industry to “look closely” at retail assets, but it’s not slowing down investment.
Amazon does, however, “drive us to invest in places that people want to be” – and that means more emphasis on place-making “so that people want to linger”.
The office market is moving in a similar direction, Mason added. “Like retail, we are having to look at the add-ons” like concierge services and end-of-trip facilities. It is these additional offerings that “make tenants sticky”.
People are spending more on dining “outside their own kitchens” than ever before, Viney observed, and “shopping centres are evolving to meet a consumer demand that is being expressed very, very loudly,” she said.
Greg Paramor AO, managing director of Folkestone Limited, said the retail landscape had changed in recent years. Coles and Woolworths were now being “very selective” in their siting of new stores, and the era of a supermarket setting up shop “on every street corner” was over. This shift in thinking is slowing down supply, and that is “very healthy” as Amazon gains a foothold, he said.
Charter Hall’s managing director and group chief executive David Harrison was more circumspect. He warned that Amazon is a “serious juggernaut” that shouldn’t be underestimated.
QIC Global Real Estate’s managing director Steve Leigh is optimistic. He said Amazon’s entry has undoubtedly “sharpened our game” and is a “formidable platform”, but he’s looking forward to its first day of trade, because the “fear and loathing” in anticipation is likely to be far worse than its actual impact.
Leigh pointed to the United States and Canada, in which Amazon has operated for 20 and 10 years respectively.
“Amazon has carved out a fair chunk of the market, but the world has gone on.
“Occupancy levels of all malls in the US are at their highest level in 17 years, but I never wake up to that headline. All I hear is the mall is dead.”
Amazon is a “genuine threat” and one which Leigh is taking seriously. “But what keeps me awake at night is the state of the household balance sheet and cash flow,” not Amazon.
In a later session, macro economist Tony Dimasi noted that support for the retail sector is “inherent in the sheer numbers of people” immigrating to Australia every year.
“Population growth equals retail sales growth,” he said.
“We have always been a nation of migrants”, he said, but we have been “pushing 400,000 new Australians a year for the last decade.”
This population growth demands around 752,000 sqm of retail space a year. “That’s about five Chadstones and between 40 and 45 additional supermarkets each year.”
Amazon, which sells more non-food goods in Germany and the UK than any other retailer in each country, is no rumble in the jungle. There is “no question” that Amazon will inflict some damage, but how much remains to be seen, Dimasi said.
More generally, the leaders expressed confidence in the industry’s position.
The underlying “fundamentals” in the economy remain positive, Mason said, pointing to the “26 years of economic growth” and low unemployment, as well as yields that are “still not as firm as Tokyo or London” which makes Australia an attractive market for investment.
Harrison thinks the Australian market is “a little more fragile” than it was three years ago, but is still in “pretty good shape”.
“From a macro point of view, we are seeing the biggest eclectic source of foreign capital that I’ve ever seen,” Harrison said.
For Viney it’s a “story of relativities” with Australia faring well when investors compare our market with the rest of the world.
“The other piece of promise is the amount of focus on infrastructure investment that our cities have sorely needed for some time,” she adds.
Paramor, who has seen a few cycles over the course of his career, said the property industry hasn’t experienced a real downturn since 1990.
He cited population and jobs growth, our rich natural resources and the fact that “people want to live here” as good news for the industry.
“It’s hard to see something locally that will disturb our market – it will be something external,” just as the GFC was a global force. While a downturn is inevitable, and Amazon will have an impact, Paramor’s advice is clear: “As long as you follow the fundamentals, stick to your knitting and don’t overleverage yourself, you’ll get through it.”