Retail success will need ‘bricks plus clicks’

5:00 AM Saturday February 4, 2017 True Commercial

Swedish fashion giant H&M, which opened its first Kiwi store at Sylvia Park in October, is credited with boosting sales there. Photo / Supplied

Kiwi retailers need to invest in both “brick and clicks” if they are to compete against the wave international players setting up shop in New Zealand, commercial property and retail experts have urged.

John Church, Bayleys’ national director commercial and industrial, says Kiwi retailers can no longer afford to treat digital business as separate from brick and mortar sales.

“Few people now believe digital shopping means the end of physical retail. Shoppers want a blend of online and offline experiences and surveys have found bricks and mortar stores are still where the bulk of New Zealand retailers make their money.

“Although the influence of e-commerce has resulted in the closure of some traditional format stores, with mid-range clothing outlets seemingly under the greatest pressure, there remains insatiable demand for well-managed prime retail property.”

The lower end of Auckland’s Queen St and Wellington’s Lambton Quay are home to an increasing number of high-profile off-shore brands while malls owners are spending up big to lure prized fashion chains. H&M and Zara opened in Sylvia Park late last year, both occupying close to 5000sq m of space and boosting sales at the mall.

Scentre Group, Australasia’s largest mall group, announced plans last year to spend $500 million expanding its Auckland Westfield malls in Newmarket, St Lukes and Albany, and has promised to bring new international retailers to New Zealand.

H&M is one of the anchor tenants at Commercial Bay, Precinct’s $681 million downtown Auckland development. The retail component, expected to open by October 2018, is set to house around 100 shops, including other international and domestic fashion outlets plus restaurants, cafes and bars.

H&M and Zara are said to be scouting for space in Wellington. Th Lambton Quay retail strip is already riding high following the opening of Topshop’s 1200sq m store and the 7000sq m David Jones store last year.

David Jones is a coup for the capital. The Wellington store is its first outside Australia and the first in New Zealand to offer international labels such as Balenciaga, Alexander McQueen, Valentino and Saint Laurent.

“New Zealand is also definitely on the radar for global brands looking to expand internationally. This will mean more new entrants into the leasing market, with Tesla already flagging its interest in establishing a presence in New Zealand and further high-profile fashion brands likely to set up shop here,” says Church.

The arrival of big international brands will put pressure on local retailers to up their game.

Chris Wilkinson, managing director of retail consultancy group First Retail, says Kiwi retailers were lagging in digital sales because they did not have as much online visibility as their overseas competitors, which account for 40 per cent of all online spending in New Zealand.

Local retailers have so far been able to survive by simply bolting an online offering on to existing business, but that is not sustainable.

Jonathan Elms, associate professor at Massey University and the holder of the Sir Stephen Tindall Chair in Retail Management, says that international players would seek to dominate digital market.

“David Jones, H&M and Zara have all invested in their systems overseas but have yet to offer online sales delivered from New Zealand,” he says.

“But it will be coming — they just need time to establish the infrastructure so their online delivery lives up to consumer expectations and doesn’t damage their brands.

“For it to be seamless, New Zealand consumers have to get the same offering that customers in Australia and other key markets are getting. It will take time to get it right but it is safe to say that the impact these international retailers are having on the local market has really just begun.”

Those at the vanguard of the retail industry have responded by blending online and offline; they want customers to move seamlessly between both and understand that looking at a website is never going to be the same as the sensory experience of shopping in a physical store.

For Kiwi retailers to be able compete successfully in this new environment, they need boardroom level coordination and backing to ensure digital isn’t an independent, bolt-on department. “For this to work all the systems behind the scenes have to be integrated and show available inventory in real time. Consumers need to get the same price and service no matter what channel they buy through.”

Elms says Amazon’s push into the Australian market this year should put New Zealand retailers on notice. The digital giant’s planned new distribution centre just outside of Sydney would offer Kiwi shoppers even easier access to goods on the platform and at more competitive prices.

“New Zealand will be one of the last viable markets,” he says. “If Amazon does come it will have even more repercussions. It provides an opportunity for small boutique designers to sell their wares on a well-established and well-known platform. That opens up commercial opportunities for them but could create real headaches for existing New Zealand retailers.”

Elms says the “Amazon effect” will undoubtedly change Kiwi retailers’ space requirements. “There’ll be fewer stores and properties and they’ll be convenience-orientated. There may be steady decline of big-box retailing, but that all depends on how successful retailers are at maximizing sales space,” he says.

He believes bricks and mortar will continue to be the dominant retail channel but physical stores will change. “Stores will need to deliver an experience for shoppers; it’s a branding exercise,” he says.

Many Queen St stores are already taking on this role. “Some don’t have the same drivers to deliver transactions in any volume,” says Wilkinson, “simply because they are a showpiece designed to lead customers toward other shopping channels. Shops need to focus on experiential retailing.”

Digital retailers need to change their business models if they are to expand. Physical stores in a prominent retail hub are a way to solidify their grip on consumers. Last year, it was reported Amazon has plans to open as many as 400 bricks-and-mortar bookstores in the US.

“The web is now becoming a crowded place, so to drive awareness, physical stores are back in focus,” Wilkinson says.

Pure online retailers do not pay rent but without storefronts to lure in customers they have to buy ads linked to Google search results, and delivery costs can be high. Couriers often show up at empty houses, and surveys show shoppers return a quarter or more of clothing they buy, another big expense.

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John Church, Bayleys