As the Aussie dollar has surged in recent months it’s clear that those buying online from overseas websites are enjoying amazing savings as compared to buying locally from bricks and mortar retailers.
In fact, online retailing is growing at a rapid pace and will continue to do so as long as the Aussie dollar remains strong. But it isn’t just the strong Aussie dollar that’s driving the rush to overseas online retailers.
The harsh reality is that a key reason Australian bricks and mortar retailers are finding it harder and harder to compete with online retailers is that retail rents in Australia continue to rise. Australian retail rents are some of the highest in the world and that’s bad news for local retailers operating out of a major shopping centre.
Sadly, major shopping centres such as those operated by Westfield have been increasing their market power over the years to the point that they can push up retail rents at will. How has that happened? Well, it’s a combination of factors, including the failure of the ACCC to prevent the players such as Westfield from increasing their market share and power.
Take the Pitt Street shopping precinct in Sydney. Over the years the ACCC stood by and failed to stop Westfield from slowly buying out the competitors around Pitt Street Mall. As usual, the ACCC conducted what it described as a “vigorous” investigation, but failed to stop Westfield from taking a stranglehold over prime CBD retail space.
The ACCC gave plenty of excuses for doing nothing to stop Westfield from extending their dominance of the shopping centre market, but the vigour apparently exerted by the ACCC when investigating the matter did not translate into vigorous enforcement of our competition laws.
Now we have a shopping centre market dominated by the likes of Westfield and they generally show no mercy in driving up retail rents, especially for the speciality retailers. Naturally, the so-called major tenants such as Coles and Woolworth get super rent deals where they could pay as little as 10 per cent of the rents paid by some of the speciality retailers.
With Pitt Street Mall the retail rents were recently found to be second only to New York. Even in your regional Westfield Shopping Centre retail rents are such that many speciality retailers are finding it tough to survive.
Is it any wonder that speciality retailers in major shopping centres around the country are struggling? With the increased cost of living and the relentless increases in retail rents there is no doubt that bricks and mortar retailers in Australia are doing it tough.
As retail prices at Australian bricks and mortar retailers get pushed up by bloated retail rents it’s inevitable that local prices will be so much higher than overseas retail prices. Add the surging Aussie dollar in the mix and it’s inevitable that consumers will turn to shopping online with overseas websites.
For consumers shopping online the savings from overseas websites are immediate and substantial. Any Australian consumer with, for example, a credit card gets the immediate benefit of a strong Aussie dollar without having to wait for suppliers to cut local prices to reflect the stronger Aussie dollar.
Yes, suppliers play games with Australian consumers and don’t always fully pass on the savings from a strong Aussie dollar as quickly as they should. It happens in petrol and it happens in retailing. In retailing suppliers will no doubt seek to justify retaining some of the benefits of a strong Aussie dollar to counter the ever increasing retail rents imposed by the shopping centres landlords.
As increasing retail rents help push up retail prices the harsh reality is that Australian bricks and mortar retailers will be priced out of the retail market. Quite simply, online retailers (especially those from overseas) don’t have to pay the escalating rents imposed by shopping centre landlords on their captive speciality retailers.
Overseas online retailers are likely to operate from warehouses or distribution centres where rent is minimal thereby giving them an immediate and significant cost advantage over Australian bricks and mortar retailers.
You would need to think twice before buying a book from a Dymocks bookstore paying high retail rents when you could buy the book from, for example, Amazon at up to 50 per cent less than the local price. Not only that but Amazon UK has recently been offering free postage and handling to Australia. It’s no surprise that the owners of Borders and Angus & Robertson bookstores put the business into administration recently.
Why would you buy designer sunglasses or jewellery from a retailer in a major shopping centre when you could buy the same sunglasses or jewellery at up to 50% discount from Amazon?
It’s noteworthy that escalating retail rents were undermining speciality retailers long before the surging Aussie dollar started to deliver a killer blow. It’s no surprise that the Kleins jewellery franchise went bust in 2008 because of the escalating retail rents it was facing from shopping centres landlords.
It’s not only Kleins jewellery franchisees that lost everything when their franchisor failed, but we will see more franchisors fail and with them all those retail franchisees struggling to stay afloat because the shopping centre landlords keep pushing up retail rents.
What’s the moral of the story?
The ACCC and the Federal Government need to move quickly and effectively to stop the growing concentration of markets in Australia. Increased market concentration is a market failure that leads to higher retail prices to the detriment of Australian consumers.
With our supermarkets and shopping centres already so highly concentrated, it’s no wonder that we consistently have some of the highest levels of food inflation and retail rents in the developed world. Less talk and more effective action from the ACCC and the Federal Government would go a long way to delivering lower prices for consumers.
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