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Opportunities Down Under: Australian retail expansion

Multimillion-dollar shopping centre redevelopments, a buoyant retail market and a fashion-conscious consumer, all reasons why international retailers are eyeing up Australia.

Melbourne's GPO shopping centre

Melbourne’s GPO shopping centre

Bouyed by its links to the booming Chinese economy during the global downturn, Australia is an attractive prospect for retailers looking to take their brand to a wider stage. European luxury labels made their first forays into the market in 2011, while interest from international high street retailers began to heat up last year, buoyed by record low interest rates and inexpensive credit that has fuelled consumer spending.

Between 2014 and 2016, 60 international brands are expected to enter the Australian market, among them Fendi, Alexander McQueen, Moncler, Tom Ford, Sandro, Maje, the Kooples and Reiss.

These global players are encouraged by the buoyancy of the clothing and footwear market, which in 2015 could reach Aus$27.7bn (£13bn), retail analyst Conlumino predicts, of which 18.9%, or Aus$5.2bn (£2.4bn), are online sales.

Market research firm Mintel forecasts Australia’s clothing retail turnover will grow by 1.5% in 2015 to Aus$22bn (£10.4bn), by 1% in 2016 to Aus$22.2bn (£10.5bn) and by a further 2.5% in 2017 to Aus$22.8bn (£10.7bn).

“Australia is an affluent country, with the fifth-highest spend per capita in the world,” says Tim Starling, head of retail tenant representation in Australia for commercial real estate company CBRE. “Plus the globalisation of retail means that Australians are already shopping these international brands online and the volume of traffic shows the strength of demand.

“Brands retailing throughout Asia-Pacific already have the distribution channels in place to access the whole market, so Australia is no longer ‘the other end of the earth’.

“While Australia is a relatively immature market for international retailers in comparison with other developed countries, there has been a steady inflow of international names since 2011, and 2014 saw this level rise significantly.”

Home grown

Before 2011, the fashion retail market was dominated by domestic operators such as fast-fashion chain Cotton On, contemporary men’s and women’s wear seller Country Road, and women’s and children’s wear retailer Seed Heritage. The turning point came in 2011 with the entry of Burberry, Prada, Miu Miu, Gucci, Louis Vuitton and Bottega Veneta in Sydney.

The same year, Zara led the international fast-fashion invasion, opening its first store in Sydney in April 2011. To date the only Inditex brand present in Australia, Zara has grown its Australian portfolio during the past four years to 13 stores and one Zara Home shop in Melbourne. The Spanish fashion giant has the resources to take this market seriously, and has appointed an independent international design and commercial team devoted to the southern hemisphere.

By 2014, international interest had ramped up again, with brands such as Uniqlo, Brooks Brothers, denim brand 7 For All Mankind and Forever 21 all taking their chance to launch in Australia.

Graham Barr, CBRE head of UK retailer representation, sees Australia as the natural next step for a retailer that has already opened stores in the US and Asia. “Unlike other countries worldwide Australia hasn’t suffered a downturn and cities like Sydney and Melbourne have risen in profile to become truly international centres.”

Sydney and Melbourne boast the largest household spending on clothing and footwear, with these two cities accounting for more than half of all spending in large urban areas, according to Conlumino. Across Australia, the top five markets by spend are Sydney, Melbourne, Brisbane, Perth and Adelaide.

The focus for new entrants remains on the East Coast, with Sydney and Melbourne on equal pegging and Brisbane third in line, says Starling. “Due to its status as the ‘unofficial capital of Australia’, Sydney has been the city of choice for international retailers to position their first store, although during the past three years Melbourne has caught up and, if anything, overtaken Sydney due to the development pipeline and availability within Melbourne’s core shopping districts.”

People power

Uniqlo in Melbourne's Emporium shopping centre

Uniqlo in Melbourne’s Emporium shopping centre

Naturally retailers head for cities with dense population, where the spending power is greatest. Sydney is Australia’s most populous city, with 4.8 million people, followed by Melbourne with 4.4 million. By 2061, the Australian Bureau of Statistics expects Sydney’s population to hit 8.6 million, with Melbourne just behind at 8.5 million.

Melbourne is the next priority for American chain Forever 21, following demand from customers on social media.

“Australia is an important market for Forever 21,” a spokesperson confirms. “Our ecommerce sales in Australia have been strong for years, so we knew there was local market demand for our brand. The main cities were our first priority, particularly in the eastern states.” 

Forever 21 opened its first Australian store in Brisbane’s Queen Street Mall in October 2014, followed by stores in Sydney’s Macquarie Centre and Pitt Street Mall. Opened in June, the Pitt Street Mall store is Forever 21’s largest Australian store at 30,139 sq ft, split over three levels.

Japanese casualwear retailer Uniqlo is another international name with its eye on Australia. Since opening its first store in Melbourne’s Emporium shopping centre in April 2014 – Uniqlo’s biggest Australian store at 23,465 sq ft – the Japanese retailer has opened another shop in the city and four in Sydney. On August 10, Uniqlo announced its intention to open a third Melbourne store in the Eastland shopping centre, spanning 11,248 sq ft.

“We’re committed to expanding our presence in Australia, and see it as a key market in the Asia and Oceania region,” says Tracey Lang, Uniqlo marketing director for Australia. “The stores are an important part of the way we interact with our customers. It’s important that every store has the space to showcase the full line-up and shopping centres have provided the optimal space to allow us to do this.

“While we currently have a presence in metropolitan and suburban Victoria, and New South Wales, we’re always looking for opportunities in other states.”

Another possibility for Uniqlo could be Perth. The capital of Western Australia is predicted to have the highest population growth of Australia’s capital cities, rising by 187% to 5.5 million by 2061. Australian Bureau of Statistics data predicts that Perth will overtake the population of Brisbane in about 15 years.

H&M has recognised the opportunities of Perth’s burgeoning population by opening its first store in the city on August 29. The Swedish fast-fashion retailer made a splash when it entered the Australian market in April 2014. The opening of its 50,000 sq ft flagship in Melbourne’s GPO Centre attracted a crowd of 3,000 shoppers. Since launching in Melbourne, H&M has opened one store in Sydney and two in Brisbane.

“Australia is a very important and an exciting new market for us,” says an H&M spokesperson. “We are looking forward to opening new stores across Australia.”

Chadstone

Chadstone

Fast turnaround

The advent of international fast-fashion retailers such as H&M has changed consumer expectations of cost and speed to market. The demand for newness throughout the year prompted Esprit to introduce a fast-to-market trend division for Australia and New Zealand in September 2014, and domestic nightwear specialist Peter Alexander to increase the number of annual collections from 10 to 15.

The emergence of international retailers has also created demand for larger-format stores. Before 2011, a typical flagship was 5,000 sq ft, and most domestic retailers traded from 1,000 sq ft stores, so shopping centres were generally built for smaller-format stores. H&M’s stores in Melbourne and Sydney are 50,000 sq ft and, since the arrival of the fast-fashion giants, 20,000 sq ft stores are now the norm.

The Australian retail landscape is dominated by shopping centres

The influx of internationals has created a ‘space race’, forcing shopping centres to extend to accommodate both international brands and the best home-grown retailers looking for extra space.

“There is a ‘space race’ among all the major landlords for who can attract the newest and most high-profile international retailers in an effort to make a number of old or somewhat tired centres relevant again,” says Starling. “In order to attract these names there’s a number of new developments or redevelopments underway in each of the major capital cities and states.

“The Australian retail landscape is dominated by shopping centres. The once popular high street locations have seen a noticeable decline as a result of the strengthening of a number of centres, in particular in Sydney.” He says this is down to the “Westfield effect” with the Wedfield Sydney and Bondi Junction centres having been improved, leading to local high streets seeing a decline.

Westfield, known as the Scentre Group in Australia and New Zealand, is the dominant shopping centre operator, alongside other players such as Vicinity, GPT, AMP, QIC and Lend Lease. Scentre Group has 38 centres across the country – 17 in Sydney, seven in Melbourne, three in Adelaide, three in Perth and two in Canberra. Approximately 39% of the group’s gross lettable area is in New South Wales, followed by 19% in Victoria and 15% in Queensland.

The best performing Westfield is Bondi Junction in Sydney, generating Aus$1.02bn (£481m) total annual sales. The group’s largest centre is Fountain Gate in southeast Melbourne, at 1.9m sq ft, dropping down to the 236,806 sq ft Figtree centre in Wollongong, New South Wales.

Emporium Melbourne

Emporium Melbourne

Future formats

And there is more to come. Over the next five years Westfield will spend Aus$3bn (£1.4bn) in upgrading its mature centres to cater for larger format stores, Aus$1bn (£471.4m) of which is earmarked for the redevelopment of three centres in Western Australia.

Australia’s biggest selling shopping centre, however, is owned by rival shopping centre developer Vicinity. Located eight miles from Melbourne’s central business district, Chadstone is the eighth highest turnover shopping centre in the world, attracting 22 million customers a year. Spanning 1.8m sq ft, Chadstone houses 470 stores across two levels, anchored by domestic department stores David Jones and Myer, alongside international imports Aldi, Zara and Uniqlo. Like The Village at Westfield London, Chadstone has an international luxury precinct accommodating the likes of Chanel, Prada and Burberry.

Vicinity has big plans for Chadstone’s future. The centre is undergoing a Aus$600m (£282m) expansion into a four-level atrium space for international flagships, including a new Target store opening this month. By late 2016, Chadstone will have expanded into a new retail precinct with space for a further 100 retailers.

The shopping centre developer will not stop there. Vicinity is investing Aus$112.3m (£53m) in the redevelopment of its Cranbourne Park centre in southeast Melbourne, including a 134,548 sq ft extension featuring new format stores from Australian supermarket Coles and US discount retailers Target and Kmart.

The developer is also splashing Aus$800m (£375m) on the upgrade of The Glen in Victoria and Mandurah Forum in Western Australia, as well as breaking ground on the Aus$46.9m (£22.1m) redevelopment of its Colonnades Shopping Centre in Adelaide, which will see the introduction of Aldi, one of the fastest growing retailers in Australia.

With million-pound redevelopment schemes constantly coming on stream, designed specifically to offer the larger format stores required by global brands, combined with genuine demand for fashion and growing consumer confidence, Australia is an attractive market for international players.

Multimillion-dollar redevelopment schemes designed to offer larger-format stores, combined with a demand for fashion and growing consumer confidence, Australia is an attractive market for international players, despite its dependency on the now-cooling Chinese economy.

“Come to Australia and be surprised how good shopping is,” says Starling. “Australia might be a late bloomer on the international scene, but it’s catching up quickly. In another five years, you will see many of the brands you see in London, with shopping centre operators utilising the power of retail theatre to capture audiences.”

The Cotton On flagship in Surfers Paradise

The Cotton On flagship in Surfers Paradise

The domestic competition

Profile: Cotton On

Established in 1991 in Geelong, Victoria, the Cotton On Group encompasses 750 stores across Melbourne, Sydney, Brisbane, Adelaide, Hobart, Perth and Darwin, spanning its seven fascias (Cotton On, Cotton On Kids, Cotton On Body, Rubi Shoes, Factorie, Typo and Supre) from shoes and kidswear to fashion. The Cotton On Group has 79 megastores across Australia, which sell stock across the Cotton On Group’s seven brands. The latest 23,142sq ft megastore opened in Surfers Paradise, Queensland in June.

“What makes us different to other multinational retailers is the fact that our footprint extends further into regional areas and country towns,” says Greer McCracken, senior communications manager.

“We’ve seen the arrival of international retailers like H&M, Zara and Topshop, which demonstrates confidence in the opportunities for large multinational retailers here in Australia. We welcome the entrance of these brands; it’s a sign of sound economic growth opportunities.

“We see ourselves operating in the same space as brands such as H&M, Zara and Topshop. Globally we have co-existed with our key competitors since we first opened outside Australia in 2006. We are present in 17 markets worldwide including South Africa, Malaysia and Brazil, so as a result this isn’t new to us.

“We also see substantial growth opportunities in the Australian retail market online, having last year invested in a multimillion-dollar ecommerce platform.”

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