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The future of retail in Australia

By Tom Wallace
21 April 2022 | 11 minute read
Tom Wallace reb

Australia’s retail industry has had a rough two years, writes Tom Wallace.

Compared to industrial and office sectors, retail was the hardest hit by COVID, with severe, sustained lockdowns forcing bricks-and-mortar retailers across the country to shut their doors for months on end. The industry is reeling from the long-term impacts of this period, and many stores will have ceased trading for good.

But there is light at the end of the tunnel – new figures show consumers are roaring back into action post-COVID, filling stores once more. So, is the sector now on the path to recovery? And with online shopping spending higher than ever, what does a post-COVID retail environment look like?

Throughout 2020 and 2021, rent collection for bricks-and-mortar retail stores took a big hit across Australia. Re-Leased figures show retail rent collection was severely affected by the ongoing lockdowns across Australia, falling to a yearly low of 75 per cent in October 2021.

However, 2022 shows more encouraging signs for retail, with 30-day retail rent collection bouncing back to 84 per cent during February.

Lease lengths for the retail sector also took a hit during this period. Re-Leased data reveals that during 2020, Australian commercial property leases held by retailers slightly shortened on average and a greater number shifted onto a monthly rolling basis. Leases continued to drop in the first half of 2021, falling from 2.75 years in January 2021 to 2.52 years in July 2021, before stabilising in the second half of 2021.

Fortunately, more recent figures reveal sharp increases in 2022, with lease lengths currently sitting at 2.62 years in March 2022. This commitment to longer lease lengths indicates Australian consumers and businesses have grown in confidence as vaccination levels increase and the impact of COVID lockdowns subsides.

So, what can we expect for the future of retail?

With consumers largely stuck at home over the past two years, the uptake of online shopping soared, reaching an all-time high in 2020 (Australia Post, Inside Australian Online Shopping report 2020). During this time, an entirely new segment of the market tried out online shopping for the first time, creating and solidifying habits that have transformed them into regular e-commerce users. Australia Post’s 2021 report also confirms this, revealing 82 per cent of households were now shopping online, leading to a 57 per cent year-on-year growth in online purchases.

During the pandemic, it was painfully evident stores that had no e-commerce platform suffered the worst, with owners left without income from their businesses for months on end. As such, it is expected many retailers will begin to establish or enhance their online presence in the coming years, learning from the pandemic to futureproof their business and open multiple revenue streams to generate more sales as consumers increasingly favour online shopping.

However, whist the pandemic has accelerated this consumer migration to online shopping, this does not mean the death of the traditional bricks-and-mortar store. With almost all COVID restrictions eased across the nation, retail sales are currently surging as people leave their homes again, pushing spending to the second-highest level on record and almost 20 per cent higher than pre-pandemic levels (ABS February retail trade data, 2022). As evidenced by this recent rush to spend in-store, Australians clearly still value the in-person shopping experience, avoiding the pain points of online returns, delays in postage, and shipping costs.

The physical retail store as we know is expected to be given a major refresh. To entice people in-store, it will need to evolve as an experience-based destination to compete with online shopping. Retailers may refrain from opening new stores and instead divert that money into upgrading their existing stores to deliver an immersive retail experience. Australia’s biggest shopping centre, Chadstone Shopping Centre in Victoria, is a clear example of this, acting as both a high-end fashion and entertainment hub to offer an experience consumers can’t purchase online.

As the rising cost of living becomes an increasing concern for Australians, the future of retail remains uncertain, with many consumers beginning to reel back discretionary spending. The past two years have shown those who remain adaptable, developing both e-commerce platforms and in-person shopping experiences, will remain the most resilient.

Tom Wallace is the chief executive of Re-Leased.

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