Retail will never die

More and more people are working from home since COVID-19 entered our lives leading to big changes in the way we shop, but retail the sector is nothing if not resilient.

Total Property - Issue 6 2020

As office workers around the country work from home in droves the Covid 19 ripple is being felt across the retail sector with structural changes taking place before our eyes in the traditional commercial sectors of office, shopping and hospitality.

Bayleys and retail experts say businesses are busy working on how to improve their online capacity and to streamline click and collect facilities to enhance contactless shopping. The Covid-induced pressures are not all doom and gloom and while some businesses are struggling others have boomed through the surge in online shopping.

These trends are likely here to stay and the big winners so far include large format retail with figures showing Kiwis spent up large coming out of the first lockdown. Bayleys’ Ash Hira, director, retail sales and leasing, says with all that time at home people looked around their lounges and backyards and instead of putting something on their wish list they went out and bought it, be that a new couch or a spa pool.

Kiwibank credit and debit card data shows Kiwis splurged on the likes of beauty and hair, clothing, home improvements and electronics. They also spent up big on alcohol and even bought and pampered new pets.

But with office buildings empty of workers and the shops and cafes which service them closed again during the second Level 3 lockdown, times are challenging in the city centres and big changes are bedding in. AMP Wealth Management is one business which has announced a move to smaller premises outside the Wellington and Auckland CBDs.

Who would have thought a little virus could lead to such structural change so quickly, says Ryan Johnson, Bayleys national director of commercial. The speed took everyone by surprise, including employers. Prior to Covid 19 employers were putting more people into less square meterage only to now find offices empty of their usual number of workers.

“To go from an agile workplace with some occupiers at a .75 percent ratio of desking per person to now working from home is almost two polar opposites from an employer’s workplace strategy – no one ever saw that.”

The work-from-home quantum shift has flow-through to people now eating, drinking, shopping, entertaining and even meeting clients around their local neighbourhood rather than in the CBD.

Chris Beasleigh, Bayleys national director of retail sales and leasing, says all cities in the world are struggling because of the new work from home dynamic and bigger companies are now working on the premise that 40 percent or more of a worker’s time will be at home.

But while CBDs like Auckland are hurting, Beasleigh says the city’s loss is the suburbs’ gain. “It’s a big, big shift. If you’re working from home you’re going to pop down to the local café to get a coffee or a bite to eat.”

Retail in the CBD will come back, he says, but probably not until the cruise ships and tourists are back, the universities fill up and overseas students return. ““Retailers have been triple hit. We’re seeing a lot of vacancies in Queen Street but I think in the long term things will get back to normal. You see all the work that’s been done, whether it’s Queen Street or Quay Street, all the upgrades and all the capital spend – it’s going to be an awesome CBD waterfront but at the moment the crystal ball is when people are going to come back.”

Beasleigh says the changes in where people work may lead to the repositioning of some buildings in the CBD, such as a Tier 3 office building being taken out of the pool of office space and turned into residential.

“There’s going to be change, there’s going to be a lot of space coming up. But that’s only in three CBDs (Auckland, Wellington and Christchurch) so it’s not a massive part of the retail footprint.”

He expects a lot of retail companies will move to dark stores, perhaps closing some outlets and investing back into delivery, but says retail always adapts. That vacant space will be filled by others, possibly in the service industry, like hair, nails and beauty stores because you can’t get a haircut or your nails done online.

“That sector seems to be quite strong. There will be some areas that have too much retail and will be affected but if you’ve got single level shops you can knock them out and put barbers in. You can amalgamate and do mixed-use schemes.

“People have been saying death of retail for the last 20 years but it always seems to reinvent itself in one shape or another.”

Businesses may also find the changes are adding another string to their bow. “You’ve got one part of your business where you’re selling direct to the consumer online, via click and collect, via delivery, via Uber Eats and pick up food so now you’ve got another part of your business to add on top of your bricks and mortar. Your shop may only be open nine to five, or to 11pm if you’re a restaurant, but if you have online retail as well you can sell 24 hours a day.”

One area which has boomed is groceries. Jason Stockill, Countdown’s general manager of format development and property, says during the first lockdown Countdown supported small businesses which have shops within its supermarkets and shopping centres.

Rent relief was offered to tenants from cafes and restaurants to travel agencies, hairdressers, takeaway outlets and real estate agencies, and also to Auckland tenants during the Level 3 lockdown.

“The year has also reinforced and fast-tracked a number of initiatives, such as our eStores, online capacity and drive thru pick up service. Definitely the biggest change we’ve seen this year has been demand for online shopping services – while this has been in growth since we started online shopping more than 20 years ago this year has seen more and more people embrace the convenience of online and, of course, it’s helped people heed the Government’s lockdown advice to stay home.”

“This year has seen more and more people embrace the convenience of online and, of course, it’s helped people heed the Government’s lockdown advice to stay home.”

This demand will impact the way Countdown thinks and designs in the future. Retail is a fast-moving industry and stores are always being adapted to meet trends, societal changes and environmental factors, be that around locations, the drive toward convenient meal solutions or different style stores such as the new metro stores.

“A good example of future design thinking is our first smart store in Rototuna (in Hamilton) which has a number of initiatives to provide a better and safer environment for both team and customers, including energy-saving refrigeration and chiller doors, a hazard-detecting robot and drive thru online pick up.”

The future of grocery is “incredibly bright”, says Stockill. “Investing in our business to set ourselves up for the future is a key focus for us, including innovation like our Penrose eStore and our plans for two more eStores, in Moorhouse, Christchurch, and Grenada North, Wellington.”

Ash Hira, who works in large format, says the Level 4 lockdown and subsequent restrictions did not slow his clients’ plans. “Let’s just say quite a few of these majors are looking for more than a dozen stores each.”

With cooped up Kiwis spending hard in homeware, appliances, department and furniture stores, internet sales all increased. “What seems to be happening is people who spent $12b overseas are now spending it locally on those sorts of things; on home improvements, on internal holidays and new cars.”

That’s a “phenomenal” amount of money and the first lockdown also led to a build-up of cash in people’s pockets because they hadn’t been spending it at bars and restaurants or even on petrol.

With the borders closed this mindset will be around for a while yet and the change is feeding into how Hira’s clients are thinking about design, especially the ease with which customers can use click and collect.

Technology, too, is likely to play a bigger role going forward, Hira thinks, with phone tracking of delivery items enhanced for customers – and technology is changing how stores are designed.

“We’re now designing entire retail centres on Zoom and Microsoft Teams with architects and engineers and traffic engineers. During the last lockdown we virtually completely designed a major retail centre that we were leasing with all of us sitting in our homes.

“We did fly throughs with retailers and the architects in 3D with everyone sitting in their homes getting their stores designed, their centres designed and with input from their design teams offshore. It all worked. Prior to lockdown we would have flown to Sydney or Melbourne or wherever it was, or they would have flown over here.”

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