Retail’s virtuous cycle

Retail’s virtuous cycle

Total Property - Issue 3 2019

Retail spending is on the rise driven by a rapidly expanding population, employment growth and the wealth effect created by rising residential property values. A tourism boom has added further support with growing numbers of overseas visitors boosting spending.

The confidence these solid fundamentals have provided the retail sector has seen a surge in development activity, particularly in regional malls and prime high street locations, as national and international brands look to secure prime positions – which not only increases 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 2017. Auckland led the way with consumer spending topping $34.7 billion.

Increases were greatest in regions with growing populations or surging residential property values. Seven regions saw above average growth, six of them in the North Island: Northland, Auckland, Waikato, Bay of Plenty, Hawke’s Bay and Manawatu-Wanganui. Tasman was the only South Island region to top the national average, but registered the greatest percentage growth.

Meanwhile, the number of international visitors to New Zealand 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.

Ministry of Business, Innovation and Employment statistics show that retail spending by international tourists has grown significantly over recent years, reaching almost $7 billion for the year to 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 hospitality attracted a further $2.7 billion.

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

Development activity surges

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

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 million, a figure which has more than doubled in eight years.

The total floor area consented also reached a new cyclical high of approximately 429,500m2 in 2018, 34 percent ahead of the 2014 figure of 319,000m2 which had been the highest recorded post the GFC.

According to commentary released by Stats NZ, the surge in retail development was driven by mall owners.

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

Across the region, close to $2 billion of development has been put in place over recent years.

Canterbury generated the second-highest value of consents over the last year. The Bay of Plenty, another region whose population has grown rapidly, has also seen a lift in development, registering the third-highest value of consents, followed by tourism-driven Otago, where Queenstown has seen rafts of new retail development in recent years.

Prime space lifts sales across channels

The surge in retail development runs contrary to the narrative of a business sector 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 in leading malls and prime retail strip locations compared with many traditional high street and secondary-grade malls.

The former locations attract higher foot counts and maximise exposure to physical shoppers. In addition, research has shown that the opening of physical stores, particularly flagship stores, boosts 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 traffic, and its share of web traffic in that particular market.

The report concluded the future is bright for physical stores. When retailers invest in physical locations, their online presence thrives. They also perform better on measures of brand awareness and consumer perceptions. But retailers must continue to innovate in order to flourish in today’s environment.

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