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As consumer spending keeps climbing supported by a growing economy, New Zealand is seeing a surge in development which in turn feeds online sales.

Retail spending across New Zealand is on the rise driven by a rapidly expanding population, employment growth and the wealth effect created by the rise in residential property values. A booming tourism sector has added further support with an increasing number of overseas visitors boosting spending.

The confidence which these solid fundamentals have provided the retail sector has seen a surge in development activity, particularly within regional malls and prime high street locations as leading national and international brands look to secure prime positions – which not only increases the number of physical customers but also drives activity to online platforms.

Spending on the rise

Retail spending across New Zealand reached just under $94 billion in 2018, an increase of 3.8 percent on the 2017 total. Unsurprisingly, Auckland led the way with consumer spending topping $34.7 billion.

Increases in spending were greatest within regions which have seen population growth, Auckland being the best example, and also surges in residential property values, including areas such as Hawkes Bay. In total, seven of the nation’s regions saw above average growth with six of them being located in the North Island: Northland, Auckland, Waikato, Bay of Plenty, Hawkes Bay and Manawatu-Wanganui. Tasman was the only South Island region to top the national average, and registered the greatest percentage growth nationally.

Tourism boom adds support

New Zealand’s tourism sector is in expansion mode. The number of international visitors to the country reached 3,822,000 in the year to October 2018, an increase of 4 percent on the year and up by approximately 1 million since 2014.

Once again Auckland has been the prime beneficiary of this trend. However, the South Island centres of Otago, a result of Queenstown’s appeal; and Canterbury, come in at second and third place when distribution of spending is analysed.

Ministry of Business, Innovation and Employment (MBIE) statistics show that retail spending by international tourists has grown significantly over recent years, reaching almost $7 billion for the 12 month period ending in January 2019.

The retail shopping and hospitality sectors attract a majority of tourist spend. In the year to January 2019, spending in retail shops stood at approximately $3 billion while the hospitality sector attracted a further $2.7 billion.

While, Auckland, Otago and Christchurch saw a majority of the spending, all regions throughout the country have seen increases in international expenditure over recent years.

Development activity surges

The value of new building consents for the retail sector spiked in 2018 according to figures released by Statistics New Zealand (Stats NZ). Over the course of the year the total value of consents for retail shops and hospitality premises reached just short of $780 billion, eclipsing the 2017 total of $500 billion.

While annual consent figures can be quite volatile, development activity has been trending upwards since the economy began to recover following the Global Financial Crisis (GFC) in 2010. At that time the value of consents stood at approximately $350 billion, meaning the value of consents has more than doubled over eight years.

The total floor area consented also reached a new cyclical high of approximately 429,500m2, 34 percent ahead of the 2014 figure of 319,000m2 which had been the highest figure recorded post the GFC.

According to commentary released by Statistics New Zealand, the surge in retail development activity was driven by mall owners.

The lift in activity has been led by Auckland where the value of consents issued in 2018 reached approximately $420 billion, 54 per cent of the national total. Demand has been driven by a booming population and strongly performing economy.

Across the region, close to $2 billion of development has been put in place over recent years. In the central city, Precinct Properties is replacing its former waterfront mall with a new shopping centre, as part of the $1 billion Commercial Bay development. Located at the foot of its new 39-level PwC Tower, under construction between Quay St, Lower Albert St and Customs St West, that centre is due to open in late 2019.

In Newmarket, Scentre Group is spending $790 million rebuilding and expanding its 277 Westfield centre to create 7.3 hectares of indoor floor space. The project will bring Auckland's first David Jones outlet, 230 speciality stores, a new Farmers, Countdown and cinemas, all linked via an airbridge over Mortimer Pass. That opens later this year.

At Mt Wellington, Kiwi Property has the formwork structure up for the $223 million expansion of Sylvia Park, creating a new upper-level galleria for an 8,100m2 Farmers, expanding carparking to 5,000 spaces and almost finishing a new 10-level, $80 million office tower for 1,000 people. That expanded shopping centre opens in 2020.

The Canterbury region has generated the second-highest value of consents over the last year. While the 2018 figure is below those recorded in 2016 and the peak year of 2014, consents totalling $132 billion show that new CBD development along with mall expansions still have some way to run in Christchurch.

The CBD has seen significant development post the 2011 earthquake, featuring projects such as the $140 million The Crossing. In addition to rebuild activity, Northlands Mall has benefitted from a $18 million upgrade.

The Bay of Plenty, another region which has experienced rapid population growth over recent years, has also seen a lift in retail development activity, registering the third-highest value of consents. It is followed by the tourism driven region of Otago, where Queenstown has seen rafts of new retail development over recent years. The Frankton Flats area, close to the airport, has seen recent development at Five Mile, which includes premises for Countdown and The Warehouse, and at Queenstown Central, home to Kmart.

Prime space lifts sales across channels

The surge in retail development activity runs contrary to the narrative of a business sector which is in steep decline in the face of competition from e-commerce. It should be noted, however, that there is a stark contrast between demand for retail space within the nation’s leading malls and prime retail strip locations compared with many traditional high street and secondary-grade malls.

Clearly the former locations attract higher foot counts and maximise exposure to physical shoppers. In addition to this, research has shown that the opening of physical stores, particularly flagship stores, leads to an increase in traffic to the brand’s online presence.

A survey conducted by the International Council of Shopping Centres in the US, has revealed that the opening of a physical store increases a retailer’s online Internet traffic in general, and furthermore a retailer´s share of web traffic in that particular market.

The key findings of the study were:

• Opening one new physical store in a market results in an average 37 percent increase in overall traffic to that retailer’s website, compared with web traffic prior to the store’s opening

• For emerging brands, defined as those less than 10 years old, new store openings drive an average 45 percent increase in web traffic following a store opening. For comparison, established retailers experience an average 36 percent boost in web traffic

• On average, the share of web traffic increases 27 percent within a specific market when a new store opens

• The opposite is also true: web traffic drops off when retailers close stores. In one retailer’s case, the share of web traffic across the markets where they closed declined by up to 77 percent

The report concluded that a bright future lies ahead for physical retail stores. When retailers invest in bricks-and-mortar locations, their online presence thrives. What’s more, retailers with physical stores perform better on measures of brand awareness and consumer perceptions than in markets where those brands lack physical locations. As the findings, examples, and insights in this report reveal, physical stores matter, but retailers must continue to innovate in order to flourish in today’s environment.

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