The future is grim for shopping malls

Australia’s retail sector was already facing tough conditions before the arrival of COVID-19.

Retail sales volumes were running well below average in the year to March 2020:

And real household consumption recorded its first annual decline since the Global Financial Crisis:

The picture has obviously darkened considerably amid the onset of COVID-19. Shutdowns closed ‘non-essential’ stores and foot traffic has yet to recover to previous levels. The virus has also accelerated the shift to online, thus shifting sales away from traditional bricks and mortar stores.

Deloitte Access Economics believes Australian retail is facing its worst year on record, with a forecast 1.4% decline in turnover for 2020.

Major national brands like Target have already announced store closures, and there are now big question marks over the future of bricks and mortar retail, in particular shopping centres.

In the United States, several large retail chains synonymous with shopping malls have already filed for bankruptcy. And experts are tipping that one in four of these malls could shutter over the next five years.

Sadly for bricks and mortar stores, they cannot fight the internet. If there is one thing I know about humans it is that they place a high value on convenience and price.

Online platforms like eBay and Amazon are simply too convenient and competitively priced for traditional retailers to compete. And now that more Australians have gotten a taste for online following COVID-19 shutdowns, there’s no going back.

Bricks and mortar retail is facing a slow and painful death.

Leith van Onselen
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Comments

  1. mikef179MEMBER

    I’ve just recently got a VR headset and I can see things evolving to the point where most shopping is done in the virtual world. So, yeah, I wouldn’t be investing in any shopping centres any time soon.

  2. With so much commercial space for lease in the CBD, Cairns council is looking at ways to allow owners to repurpose commercial space into residential.

    Whether this becomes viable for developers or not remains to be seen. Yet, there are spaces I know that have never been leased in the 8 years I’ve been here, so I hope it does translate into some innovation and refreshed street scapes.

    I don’t know what is to become of the malls. The large areas that are soon to be vacant tend to self perpetuate. Unless the owners accept lower rents (which involves accepting a lower valuation), spaces will remain vacant and the punters will avoid such malls

      • Apartments, duplexes and the lower end are selling, but at discount. Land sales are booming and houses in good suburbs are selling quickly and at good prices

    • until the tax code changes and you just can’t have it sit there vacant with the tax payer subsidising your “losses” nothing will change. No rent, no problem its a tax thingy

      • This big time. Hearing stories of people trying to find commercial space in the CBD Darwin has been enlightening. There is not a shortage of options yet they are being asked to sign 5 year leases at prices that the tenant will not meet unless they underpay their staff and deal drugs on the side. The landlord has no incentive to meet the market so they won’t.

      • kannigetMEMBER

        Not just Tax, Banks need to periodically revalue commercial property based on what rent it has collected and not what it might collect if someone actually rented it.

        Rents dont match actual market prices, this is why you see large amounts of commercial property vacant at any one point in time.

        If you buy a commercial space for $500K Real estate says it would attract a rent of $50K, then the bank values it at $650K. Youe need to maintain a minimum 40% equity position so you owe 300K. If you dont rent it out the bank never revalues the property and as long as you can make the repayments its all good.

        So you never accept any rental offer below what the bank valuation is based on otherwise you may have to pony up a nice wad of cash on top of your repayments to bring the equity position back into the acceptable range.

        Easy fix is to have APRA determine that all commercial valuations are based on average rent over last 2 years. Zero rent = almost Zero commercial value…. Banks will sort the rest out. Cant sell if its has not been returning any rent as there is nothing to make a valuation on.

    • truthisfashionable

      Has anyone thought through that scenario?
      Businesses no longer located in the CBD so they turn commercial into residential, but regardless of where you live (assuming WFH) your office is steps away.
      Bricks and Mortar stores are leaving so the vivacious shopping is gone.
      I guess the hope would have to be that the bars, pubs and clubs remain, but we know how NIM-BY the nation is so if its slightly noisy for all the new residents it will be gone within months.
      So what remains the draw to live in a ‘CBD’ without any business and reduced entertainment?

      • Most of NY (Manhattan) is residential with only commercial in downtown (Wall St) and Midtown (Grand Central / Madison Ave).

        The fact that a lot of ppl live there means shops and restaurants and bars. Go look at walkable suburbs like Potts Point and Paddington. Lots of bars, restaurants and shops. That would be the CBD if enough residents with disposable income moved in to replace the office workers.

    • 20 person house parties and sending kids back to school for 2 weeks before sending them all over on school holidays were the obvious dumb moves.
      Its mass gatherings in enclosed spaces where this virus explodes. Fortunately some of the community housing blocks should be nearing herd immunity by now.

  3. The90kwbeastMEMBER

    The real question is, how to trade this trend. Kogan, Afterpay shares are already up a zillion %. I cashed out of Kogan back at $9.50 thinking it had its run and here we are at $17!

    Any ideas?

    • kannigetMEMBER

      Kogan source almost all of its merch directly through Hong Kong, If the situation with Hong Kong continues to escalate and our relationship with China also continues Kogan will struggle to get stuff at good enough prices.
      The delays for stuff coming out of China is already crazy, I used to get things shipped here in 2 weeks now its closer to 3 months and costs 3 times as much.

  4. SoMPLSBoyMEMBER

    With the virus behaving like a highly trained and merciless sniper, there is no current reward for our limitless vanity that has powered consumption growth for decades. Anything connected to the casual and usually pointless ‘therapeutic’ spend to advance the ‘consumption’ economy will be a casualty. We’re headed quickly away ( never to return) from an economic period where frivolity and status achievement were the main engines.

    I will be a tough lesson to learn in OZ as so many aspects of our ‘culture’ connect to usually empty appearances and these include our reverence and affinity of all material items; the largest being property.
    It’s quite clear that our economic future will be a vastly different from our immediate past and despite the efforts of our leaders and the RBA, we’ll soon be in frightful whitewater on the river journey and what lies ahead was never anticipated accurately and our skills ( beyond terror-driven adrenalin) will not be much good.

    If we’re honest with ourselves (likely- once the shock wears off), we’ll welcome the other side as an opportunity to embrace a renaissance that is both needed and long overdue.

  5. blacktwin997MEMBER

    Please please please let them convert Chadstone into a combined go kart track, pistol range and paintball arena.