Changing customer behaviour a formidable challenge to retailers: BIS Oxford Economics

Changing customer behaviour a formidable challenge to retailers: BIS Oxford Economics
Changing customer behaviour a formidable challenge to retailers: BIS Oxford Economics

Australia's changing consumer spending patterns, over both time and across age groups, are changing the face of the country's retail sector, says new research. 

BIS Oxford Economics’ Retail Property Market report shows that Australians are buying fewer ‘things’ and, increasingly, consumers are not buying them from traditional shops.

These trends present a formidable challenge to retailers and shopping centre owners and developers, it says. 

Together with the cyclically weak retail environment and it threatens retailer survival and shopping centre income returns, says report author, Senior Project Manager Maria Lee.

“There's another key threat to retail property returns, and that that’s the risk of softening investment yields,” she says.

“The share of household expenditure on clothing and footwear has more than halved since 1984, from 6.5% to 3.1%.

“Not only that, but the dollar amount spent actually fell between the 2009–10 ABS Household Expenditure Survey and the 2015–16 survey.”

The report also points to the inexorable rise of online shopping. The online market share is currently around 8%, growing at over 15% per annum.

Lee points out that more mature online markets, such as the US and some European countries, are still seeing growth rates of around 15% even with much higher market shares than in Australia.

“It’s a real possibility that a growth rate of 15% per annum could be sustained for some time,” says Lee.

“If so, this would result in an online market share of 22% within 10 years.”

BIS Oxford Economics forecasts that shopping centre incomes will see muted growth over coming years in light of the above challenges.

A return to stronger economic conditions should bring with it a pick-up in consumer spending early next decade, but the company expects only modest retail turnover growth on average over the next 10 years.

As a result, shopping centre net income growth is forecast to stay only just ahead of inflation.

“And there are probably more downside than upside risks to that forecast,” cautions Lee.

BIS Oxford Economics expects increases in bond rates over the next few years to pose a key risk to shopping centre yields.

“We’re not forecasting a great degree of softening in investment yields but, even so, we forecast five year IRRs for regional centres of just 5.5%," says Lee.

“That suggests that they are currently overvalued relative to hurdle rates of return.”

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