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Perspective + Business

The darkest place is under the candlestick

Andrew Gorecki
Managing Director - Retail Directions
February 24, 2016

For years now, industry experts and the media have debated the percentage of retail turnover that will ultimately end up online.

The growth of internet sales continues to exceed that of brick and mortar sales. Today, retailers derive somewhere between 1 and 5 per cent of their turnover from online sales.

Most brick and mortar retailers have embraced online trading for the extra revenue it provides. Additionally, this move protects their turnover regardless of what proportion of it ends up flowing through the web – be it 1 or 10 per cent.

But another audience that should have watched and acted on this online trend has ignored it, and done so at great cost. I refer here to the operators of Australian shopping centres.

If you go back a few years, you may recall that some of the big consulting firms predicted the complete demise of brick and mortar retailing due to the exponential growth of eCommerce.

Those who disagreed pointed out that many people viewed shopping centres as more pleasant than their own homes. Combined with the need to touch and see the real product, this seemed a powerful argument against the collapse of physical retail.

Statistics tell us that brick and mortar retail lives on, and that store chains should expect to end up with about five per cent of their sales coming from eCommerce. This means that shopping centre operators might expect a mere 1-2 per cent drop in like-for-like sales, once you factor in supermarkets and other businesses less suited to digital commerce.

However, the reality will likely be more severe, for two reasons:

  • Rather than make their shopping centres more attractive to shoppers, capitalising on shopping centre ambience and the direct shopping experience, mall operators have embarked on projects seemingly intended to restrict customer access to their premises. This, of course, sounds insane – but I have some examples that prove it true.
  • Mall operators have completely washed their hands of helping retailers in combating GST-free purchases from overseas. Even if overcoming the government’s resistance to eliminating this de-facto negative customs duty would have been too heavy a cross to bear, they could have at least lobbied for the $1,000 free threshold to apply to shopping centres as well. This could never happen, of course, but such a campaign would have highlighted the damage caused by this major GST anomaly.

How can you shop if you cannot park?

Let’s take a closer look at the first issue, using two shopping centres located close to where I live – Doncaster and Eastland – as an example.

When Doncaster was expanded a few years ago, I was excited to see the revamped shopping centre. However, finding a parking space was next to impossible. Although automated counters, bay lights and time limits on parking had been added, I would still end up driving around in circles for long periods trying to find a spot.

As a result, I loathe going to Doncaster. I have better things to do than burn petrol driving around in congested spaces.

Last year, the revamped Eastland opened its doors. Again, a fantastic shopping centre that was unfortunately ‘Doncasterised’ by the owners.

I now also avoid Eastland, and spend more time shopping online as a consequence. Not that I necessarily enjoy doing so, but rather because I am forced to.

In the past, a shopping trip amounted to the decision between buying online and waiting a week or two for the product, or driving five kilometres to Eastland. In most cases the local shopping centre won.

Now, however, I must choose between online shopping and a 12 kilometre drive to a shopping centre which still provides useable car parking.

Most retailers will tell you that the ‘catchment area’ of an outlet does not exceed 8 kilometres. So, with both Doncaster and Eastland now essentially dysfunctional, online shopping has become my preferred option.

I would not be surprised to see the same parking issue occurring throughout Australia. I was recently told that the Southland shopping centre in Cheltenham has also become a disaster area in that respect.

By restricting access to their newly refurbished and expanded centres, mall operators short-change tenants and give consumers an additional push into the online sphere. This hurts both shopping centres and retailers.

Cutting off your nose to spite your face

The second matter mentioned earlier – GST-free purchases from overseas – has already done significant damage to the retail industry.

Customers have been trained to look online for cheaper overseas alternatives. I recently heard about a gentleman who used to try shirts on in a Melbourne store and order them from the retailer’s UK outlet for half the price.

How can the price vary so wildly? Blame the exchange rate, GST imbalance, higher property rental rates in Melbourne and higher labour costs in Australia.

To this end, mall operators have a lot to answer for. Focused on returns rather than the wellbeing of their retailers, they have driven many of their customers to digital alternatives. Further, they have completely failed to influence Australian politicians to implement more rational labour laws and fairer GST rules.

Note that the exchange rate has been adjusted over the last two years. The 30% loss of AUD value has translated into online purchases going overseas dropping from 40% to 25%. One could expect that if the GST anomaly was fixed this would further recede to 20%, leaving another billion dollars in the country.

I have no doubt that, faced with commercial pressures, shopping centre operators now frantically seek to comprehend the external forces that caused their profits to drop.

As the titular proverb says, they should look in the mirror. The darkest place is under the candlestick.

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About the author

Whether it is retail, technology, current events or entrepreneurship – Andrew Gorecki brings an unconventional approach to the subject matter. He provides a compelling alternative narrative, challenging mainstream views, and is sought out by industry insiders for his strategic advice and insights. Andrew co-founded the retail software company Retail Directions in 1994, and was a non-executive director of Reece Ltd and its subsidiary companies between 2008 and 2017. His latest book, Gearing Up for Success covers the critically important secrets of success that our schools choose not to teach.

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