Lawrence Brown has been helping brands like Chatime, Miniso, Hero Sushi and Yum Cha open stores in Australia for 40 years, but he’s never seen Australia’s retail landscape face the challenges it is right now.
“For a deal to be signed today, I would have to do it so that there was absolutely no downside,” Brown tells SmartCompany.
“I’ve been doing this 40 years, I’ve seen CPI (consumer price index) at 18% going back to the Gough Whitlam days … I’ve seen everything that’s bad for retailers.
“But I’ve never seen this, this is something right out of left field.”
Brown, a leasing consultant and managing director of Complete Retail Services, says the COVI-19 (coronavirus) outbreak has combined with already weak retail conditions to create an unprecedented situation for Aussie traders that’s probably going to get worse before it gets better.
The retail sector was already struggling before the coronavirus led Chinese authorities to put their country and its manufacturing base on lock down.
But now Brown says fashion retailers are facing the possibility of a winter season without any stock.
Fashion juggernaut Noni B yesterday warned it would face some product shortages heading into winter as a result of the virus, while others have also reported significant supply chain disruption in recent weeks.
“A lot of the fashion retailers right now aren’t guaranteed of getting any winter stock,” Brown says.
Uncertainty around the virus, coupled with an already difficult consumer environment that’s recently pushed the likes of Bardot, Jeanswest and Harris Scarfe over the edge, has been trickling down into leasing activity.
Brown says he’s seen an explosion in short-term leases being signed over the last 12 months as traders look to keep one hand on the rip cord.
“I’m happier looking at short-term leases right now over long-term leases,” Brown says.
The impact of short-term lease arrangements is being felt by landlords, which have reported signs of weakness within their own businesses over the last month.
Melbourne Central owner GPT recently reported a softer 1.2% increase in like-for-like income in its centres, saying a softer retail environment had driven reduced turnover rent.
“[There’s] a general market trend where leasing deals are taking longer to conclude,” the landlord told shareholders.
Empty stores are staying vacant longer as business owners and leasing consultants increasingly play hardball with landlords over commercial terms, Brown says.
“I won’t sign a deal unless the lease goes my way, and I haven’t for the past year or so,” he says.
“I hate to say it, but there’s also stupid people who go in and sign stupid leases.”
Chadstone part-owner Vicinity Centres also admitted to feeling the pinch in its most recent earnings reports.
“Novel coronavirus is having an increasing impact on global travel, trade and consequently near-term economic growth expectations,” Vicinity chief executive Grant Kelley told shareholders earlier this month, forecasting a reduction in retail income.
Brown says the retail fallout has also moved beyond fashion, saying food retailers he’s speaking with, particularly in areas traditionally reliant on Chinese consumers and tourists, are down between 20-30% since the new year.
Retail landlords have become much more reliant on food retailers in recent years as they’ve adjusted their tenancy mixes to be more focused on service and lifestyle offerings.
But he says conditions aren’t as bad as the fashion sector, which has been progressively weakened by difficult trading over a number of years.
“If you’re looking at food, it’s always going to be a growing market, but if you’re looking at fashion … I really can’t see a short-term future for fashion, it’s really hard,” Brown says.