Overseas travel more damaging than online shopping to Australian retail: BIS Shrapnel

The higher numbers of Australians heading overseas on holiday and doing their shopping there is having a more damaging effect on the retail sector than online shopping, according to BIS Shrapnel managing director Robert Mellor. 

Mellor said internet shopping was an important factor in the current challenges facing retail, but stressed that the “lost dollars” from people travelling and spending overseas was a “more critical factor” in the current soft market during an address in Melbourne recently. 

According to the Australian Bureau of Statistics, the number of Australians travelling abroad rose to 7.8 million in 2011, and Australians took nearly 2 million more overseas trips in 2011 than they did in 2010. 

A survey released by Roy Morgan in October last year showed that overseas travel intentions are at their highest point in five years, with one in 10 Australians planning to go abroad in 2012.

BIS Shrapnel is forecasting a stabilisation in retail construction in 2012-13 with building commencements rising 7% to $4.65 billion in 2012-13 following a contraction of 11% to $4.35 billion in 2011-12.

“[Retail property investors] have been cautious due to the current softness in retail sales growth,” Mellor says. 

“We won’t see a surge in investment but a stabilisation,” he says. 

BIS Shrapnel chief economist Frank Gelber says speciality stores, which provide retail landlords with their “bread and butter” rents, are doing it tough at the moment. 

“We have actually seen a lot of people walking away from their leases and not renew them for the first time in a very long time. 

“Some of it is cyclical and some is structural due to the consequences of online shopping and more Australians spending their money overseas than here,” Gelber says. 

The latest March BIS Shrapnel bulletin notes that the retail sector has a struggled since early 2011, with a relatively sharp slowdown in the rate of retail turnover growth. 

“This weakness reflects a range of interconnected factors, most significantly the loss of government stimulus, a weakened and volatile economy and a high Australia dollar which is intensifying overseas online shopping competition,” says the BIS Shrapnel March 2012 Building Industry Prospects report. 

The research firm expects consumer confidence to gradually improve over 2012, which will flow into retail sales. 

“With no fundamental oversupply of retail space, improving confidence will aid investment decisions, particularly for larger retail centres. Bulky good related construction is expected to persist at a high level,” says BIS Shrapnel in its March outlook bulletin. 

According BIS Shrapnel, the 2011-12 result would be weaker, if not for the commencement of high-end developments such as the $200 million Indooroopilly Shopping Centre expansion in Brisbane and $400 million Melbourne Emporium project. 

“Also, despite the weakness, a number of major retailers have pushed forward with aggressive expansion plans including ALDI, Woolworths (especially with new Masters hardware chain), Westfarmers (Coles) and Costco. As a result, bulky good and to a lesser degree smaller neighbourhood shopping centre retail construction has performed strongly. 

“Conditions in the retail sector are expected to gradually improve into 2012-13, which is expected to flow into warehouse space requirements and improved business confidence. Activity is still heavily reliant on pre-commitments with limited speculative development evident, and this is expected to continue,” the report says. 

“The strongest market through to 2012-13 is forecast to be NSW, with the value of building works set to expand by 27%.” 

BIS Shrapnel notes there are “quite a number of shopping centre redevelopments proposed in Sydney, and as trading conditions improve, one or two of these is anticipated to commence”. 

Currently the two biggest retail projects are both being undertaken by Stockland – the $130 million redevelopment of Merrylands (stage 3 and 4) in Western Sydney and the $180 million redevelopment of the Shellharbour Retail Centre near Wollongong. 

There is also expected to be a strong 17% surge in retail construction in WA in 2012-13, with the  strength of the state economy continuing to support investment “as excess capacity is quickly absorbed”. 

“Strong population and wage growth will result in solid retail spending growth, supporting investment in retail building,” says BIS Shrapnel. 

In Victoria, retail construction is expected to fall modestly in 2011-12 (-4%) even with construction of the $400 million Melbourne Emporium development now underway. 

In Queensland, with retail construction already at a high base and the $200 million Indooroopilly Shopping Centre Expansion the only major project expected to commence in 2011-12 in Queensland, retail building is forecast to contract by 30%.