The internet is currently eliciting widespread fear and loathing around the retail property community in Australia.  Unfortunately, much of the analysis is static and addresses issues that the retail industry in other countries (e.g. the U.S. and Korea) resolved many years ago.  

What industry professionals in Australia need to understand is that online selling is just part of a much broader technology revolution going on that is altering the interactions between physical and virtual shopping space, altering the way retailers use stores, and altering the way consumers make shopping choices.  It will inevitably alter the shopping center as well.  

Multichannel retailing has now become converged retailing, thanks to a new generation of mobile marketing programs, location-aware technologies, social media, inventory integration technologies, in-store terminals, the list goes on.

Despite the enormity of this process, the Australian industry is still stuck on simplistic questions like: "What will be the internet's market share in Australia?"  Well, actually, for what it's worth, the answer is "plenty."  The internet already accounts for 10 per cent of U.S. apparel, general merchandise, health & beauty sales.  Sales in all non-store channels (online, catalog, tv channels and so on) account for about 22 per cent.  And the percentage is growing year by year.

But what really matters right now to the property side in Australia is not so much the absolute online market share.  A more immediate question is how much the internet siphons off from incremental store sales growth.  It doesn't take a particularly large overall online market share to do a lot of damage to incremental growth.  If the cost basis of store retailers is growing but competition is intensifying and a material part of incremental sales growth is being carried off by a competing channel, you don't need to be a mathematician to figure out what's going to happen to store profit margins.

In this environment, Australian shopping centre operators and retailers interested in getting the best return from their bricks-and-mortar assets need to start getting their heads around technology and begin to harness it to drive traffic to stores, as is happening in the US and elsewhere.  If they don't, in the worst case scenario Australia is in for a period of declining growth in retail store sales and profits and shopping centre rents that will affect everyone except for top-of-the-line properties.


 


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