Newsflash - where have all the shoppers gone?

You may have seen the recent Shoppertrak data on foot traffic in Australia’s retail centres over Christmas.

Check this out:

In the last two weeks of 2018, foot traffic was down c.15% and 23% respectively.

That means the biggest two weeks of Australia’s retail calendar just had a huge air swing at Christmas and Boxing Day trading!

To put things in perspective, many retailers are battling to hold on to like for like sales with zero growth and if they can achieve this – it’s a great outcome.

To come out the other side of the biggest sales (and profit) period of the year with this sort of decline in foot traffic must hurt...a lot.

The thing is, most retail business models rely heavily on Christmas and Boxing Day as their profit driver for the entire year and when you don’t hit your numbers, you are treading water at best, and going backwards at worst.

So, what is going on? The answer is several things.

  • Online continues to grow at exponential levels, locally and globally, taking sales from physical retail outlets
  • The evolution of November as the new December has increased the operational complexity of running a retail business and at the same time pulled forward Christmas sales and eroded margin (as most November sales are at a discount)
  • Housing price declines in the major metropolitan cities will impact 2 generations of people who have never seen the value of their home go down! Add to that the rapidly escalating costs of living (electricity prices) and you get a cocktail ripe for a skittish consumer!

The problem for retailers is not only lower profit – but it’s also liquidity. If they don’t hit their sales over Christmas, they end up holding too much stock, which needs to be cleared at an even bigger discount than they had anticipated.

The problem for landlords is retailers are the lifeblood of their centres and if retailers struggle, they either support them with rent abatements or they face the prospect of empty stores. Let’s be clear, for the first time in 20 years, many landlords are seriously nervous about what is going on. 

No one anticipated this sort of Christmas foot traffic decline.

The potential knock on effect is the potential erosion of value in some of Australia’s most famous retail precincts and shopping centres. Many high street retail landlords have already felt it as famous streets like Oxford Street in Sydney and Melbourne’s Bridge Road and Chapel Street lose their lustre.

I am no canary, but if I was in a coal mine...