The events of the weekend left us with an opportunity to reflect on many issues that impact on both retail and property. The election results are a very personal matter, and are best left alone; as to the pros and cons, there has been and will be enough commentary on those issues to last us for the next 3 years. However, did you notice how many politicians were interviewed in shopping centres in the week leading up to the election? In days gone by, shopping centres were the bastion of shoppers; in fact any political electioneering was vetoed full stop. The reason being, if you had one political party in your centre then you needed to have the lot, so the best practice was to ban them all. Has that all changed? We suppose it has. In fact there is probably no control over this issue any more. How do you stop people from wandering around your real estate shaking hands and kissing babies? Or is it seen as a community activity and is therefore permitted? If you wanted to sell a raffle ticket in a shopping centre you would need permission from centre management – where’s the difference between the two activities? One assumes baby kissing and hand shaking demands a level of approval!
As for shopping, this was a hot topic over the weekend. There is just a smidgeon of optimism that the shackles of retail spending may be falling off the hands of New Zealand consumers, with an intent to start spending again in the face of Christmas. Why do we get this feeling? It’s all led by the US economy. In excess of $14 billion dollars was spent in stores on Black Friday. For those of you who may be unaware, Black Friday is traditionally the biggest shopping day in the USA and marks the opening of the retail Christmas shopping season. It follows the day after Thanksgiving. Black Friday sales this year were reported as being 6% up on 2010. Shoppers were vigilant on getting in on the bargains, and stores like Macys and Wal-Mart were shoulder to shoulder with shoppers. Furthermore, online shopping was also well up. So what does this mean for us in NZ? It’s a signal that American consumers are looking for bargains, and conversely retailers are prepared to cut their cloth to suit. It’s also a signal that there is a level of disposable income available, which in turn signals that employment has recovered a little to give both retailers and consumers some confidence in the future. Most of all, it was a clear signal from consumers that they had simply had enough of the economic downturn and wanted to spend, and they did! From a US perspective, the slowdown in the European economy has also shifted investors to again focus on America, so some positive signals that all contribute to confidence. Back to NZ. We are now over the elections; we have a stable Government which is supported by its people, which in turn gives a level of confidence in the future. We are competitive in a difficult global economy. Therefore, the brakes are off, and spending should be the focus for the next few weeks. So retailers should be confident in the potential for a satisfactory Christmas trading period. However, a word of warning, retailers should open when the consumers are available, and keep their margins down, thereby incentivising shoppers.
The election results also led us to focus on the “baby boomer” demographic. At The Warehouse Limited’s AGM on Friday, some comments were made that the Board representatives had an average age of 62. This led to discussion about board member fees, and the need potentially for some “young blood” on the board. It’s all a bit confusing. When is young “young”, and when is old “old”? If you have medical insurance cover, then the premiums mount rapidly post 60 years, and once over 65 they rapidly increase even further. This is a clear signal that medical insurers see life after 60 as more risky than prior to it. Probably quite natural, but is that attitude about to change? No longer is that demographic group likely to take retirement as early as in the past; if they feel healthy, why not keep working? If nothing else, it helps to pay the medical insurance! Further, baby boomers all have something to offer, “experience”. Graham Evans, the chairman of TWL, is 72, but from his experience alone, he still has a lot to offer. However, the key is to ensure that if you are staying in the work force, or if you hold a position that may influence the consumer market, then make sure you understand that market.
This commentary then leads on to the property market. A considerable number of people born in 1946 and beyond will now be considering their retirement options. With this demographic growing rapidly, over the next 20 years a significant amount of property will come on the market. This will be in two forms, investment property and residential property. The former will rely heavily on tenant occupation and tenant quality. Companies owned by “old people” may affect returns for investment property, as some may just close up their business and go west, if the business cannot be sold. The housing stock will also come under some pressure with more properties being available for sale. Will budding executives want to buy these properties that offer gardening and repairs and maintenance as weekend activities? Or will they prefer to rent a risk free apartment, rather than own a home? On the other side of the coin will this then generate the need for more rental properties, which will introduce an opportunity for property developers and investors? An indication of this “risk” was the statement from Pumpkin Patch, that in light of the downturn in their sales they would be seeking rent reduction from their landlords. Furthermore, they suggested that they may not renew leases where the landlords are not prepared to take a cut in rental. All pretty threatening stuff, but indicative of the market. We wonder if Pumpkin Patch will suggest a rental increase when the sales improve?!
It’s a fascinating time in which we live. “Old” can be “young” depending on your point of view, and what you want to achieve. If you’re “old”, the only risk you have is how much time is left to do all those things you want to do, while you can. So let’s close where we began: the elections. Who actually voted for NZ First when they were to all intents and purposes “over the hill”?
SHAREWATCH – DAVID JONES SHARE PRICES
David Jones is an upmarket department store chain in Australia, with 37 stores in prime retail locations. For the year to June 2011, “DJs” had sales of AUD $1.96 billion, down 4.5% from the previous year – although 2010 included an extra trading week. The company made profits of AUD $168 million, which were essentially flat once the impact of the extra week is removed.
It’s interesting to look at David Jones’ performance over the longer term. In the last five years (2007-2011), David Jones have had flat sales, and declining “sales per square metre”, but they have managed to reduce their Cost of Doing Business and grown profits quite significantly. DJ’s annual report mentions that the company still has some cost efficiency improvements to make, and presumably, profits could keep growing in the future, especially if the Australian economy starts to bounce back. Over the last five years, David Jones has taken a very different path from Kirkcaldie and Stains in New Zealand…
IN THE PRESS
LOCAL AND INTERNATIONAL MEDIA HIGHLIGHTS 21 – 28 NOVEMBER 2011
BNZ unveils swipe phone wallet trial
Bank of New Zealand has unveiled a trial of a phone with an embedded chip which is able to make payments by swiping the phone against a card reader, similar to Google’s Wallet trial in America. The trial is being done by 44 BNZ and Vodafone staff over a three month period; “What we’re testing here is the viability of a true, mobile wallet that will eventually allow people to replace multiple pieces of plastic with functionality embedded inside their phone. It’s going to make smartphones even smarter,” said Paul Tait, BNZ’s Head of Channels Innovation.
(Source: NZ Herald)
Port strike causes issues for Christmas retailers
Maritime Union workers striking at the Port of Auckland are causing issues for retailers further down the line in the run up to Christmas. Ports of Auckland has received a second strike notice which will run from Thursday, December 8 to Saturday December 10, on the back of strikes from December 2 to 4.
(Source: NZ Herald)
Topshop plans store closures
Sir Philip Green, owner of UK-based Arcadia Group, says he plans to close up to 260 stores over the next three years as rents come up for renewal. Arcadia Group owns the Topshop and BHS chains, Topshop is about to debut in Australia as part of a global expansion program.
(Source: Inside Retailing)
India expands retail to foreigners
India’s government has announced it is majorly expanding the nation’s vast retail sector to global supermarket chains in a reform that could bring on a consumer revolution. This is the Indian government’s boldest economic reform to date.
(Source: Inside Retailing)
