Big box of surprises

What a difference a year makes.

Like most of New Zealand’s commercial entities in the first months of 2020, the owners and occupiers of the country’s large format retail developments looked on in trepidation as COVID-19 locked Kiwis down at home for weeks.

While housebound Kiwis took to online shopping for everything from home office products and renovation supplies to fitness equipment, economic commentators were confidently predicting the demise of bricks and mortar retail.

Instead, owners of New Zealand’s cornerstone large format retailers are riding a new wave of success. While most have reported increases in their online business through the rollercoaster of 2020, they have also all reported continuing strong figures for in-store purchases. Around the country, new and expanding large format retail centres are already under construction or about to break ground, and vacancy rates in existing sites are at an all-time low.

The growth is not limited to one preferred big-name brand. Most of the high-profile big box stores have recorded healthy results in the wake of a watershed 2020.

The Warehouse Group (TWG) that includes The Warehouse, Warehouse Stationery, Noel Leeming, Torpedo7 and online marketplace TheMarket.com reported $3.2 billion in sales in its annual report for the year ending 2 August 2020, a 1.5 percent increase compared to FY19 when compared on a 52-week basis (FY20 had 53 weeks).

This was despite all stores being closed for seven weeks during Alert Level 3 and 4 lockdowns in FY20.

By the end of FY20, online sales for TWG had increased by 55.2 percent on the prior year and represented 11.4 percent of total group retail sales for the year.

That impressive online growth is understandable given the amount of time shoppers spent at home, but it’s notable that almost 90 percent of TWG’s total retail sales were still in-store.

TWG chief executive Nick Grayston said in his annual summation that click and collect sales increased by 103.2 percent in FY20 and a survey conducted on shopping habits during the first COVID-19 lockdown found that 48 percent of respondents shopped online with TWG for the first time in 2020.

In the annual report, Group chair Joan Withers said the performance of TheMarket.com – which was launched late-2019 offering more than two million products across more than 3,500 brands – gives the group confidence in the long-term value of this investment in the digital future.

Briscoe Group, which includes Briscoes, Rebel Sport and Living and Giving has a similar 2020 story. It posted a $73.2m profit, with net profit up 17 percent in the 12 months to January 2021 and a revenue increase of 7.5 percent in the same period to $701.8m.

But, as Briscoe Group CEO Rod Duke confirms, the growth is not just due to online shopping. “Pre-COVID, our online business was worth about 11 percent of our total revenue. Today it’s about 17-18 percent. But we haven’t experienced an online-only rush.

“Those figures mean there’s somewhere around 83-85 percent of customers shopping in-store. That’s still a pretty big chunk.”

Fresh savings, fresh air

In part, Duke puts the lockdown-defying spending numbers down to the closed borders and New Zealanders’ inability to take overseas holidays.

“Having restricted overseas travel has left some customers with more savings in their pocket, and fewer places to spend it. Instead of spending on travel as they may have planned, they’ve chosen, by and large, to spend those savings on their homes and themselves,” he says.

Chris Beasleigh, Bayleys’ national director retail sales and leasing believes large format retail centres have other unique features that appeal to shoppers in a post-COVID world.

“COVID has actually assisted a lot in making the large format retail market very strong and most retailers in that market are in growth mode.

“Large format retail centres have big open-air car parks, where you can often park right outside the store you’re visiting. The stores themselves tend to be large so shoppers can spread out inside,” he says. “All those factors appeal to shoppers who are more conscious of these things after COVID.”

A long-term love

Of course, it’s not all about COVID. It’s not as though New Zealanders have only discovered big box shopping centres as a result of the pandemic lockdowns, it’s just strengthened a long-term love affair.

Recent MSCI annual data comparing New Zealand shopping centres, bulk retail and other retail found that:

● bulk retail has outperformed shopping centres and other types of retail, achieving 12.2 percent total returns over the past three years;

● bulk retail has returned close to 17 percent over the last year while shopping centres returned -2.3% over the same period;

● bulk retail has consistently outperformed shopping centres and other retail in terms of capital gains and income returns, on average over the past three years bulk retail has returned 5.3 percent and 6.5 percent respectively

● over five years, shopping centres have returned 2.2 percent total returns, while bulk retail returned 11.6 percent and other retail returned 10.1 percent.

Beasleigh says that when it comes to bricks and mortar, large format centres have appealing features for retail tenants as well as shoppers, beyond the strong sales figures. These include competitive rents, often lower operating costs for essentials such as cleaning and lighting.

He adds that the tenancy mix of large format centres is changing, which may also contribute to the ongoing success of the sector.

“Previously these types of retail developments were really focused on home whiteware; big purchases. Now they are much more diverse and can include all kinds of retail, including fashion.”

Some of the large format retail properties currently being marketed by Bayleys include “town centre” type developments which are anchored by at least one recognised big box retailer, such as a Bunnings, Briscoes, The Warehouse or Countdown, but now include banks, clothing and footwear retailers, pharmacies, and beauty salons as well as cafes and even bars; all with open air environments and set around large car parks.

Beasleigh cites Queenstown’s Five Mile retail and commercial hub, owned by Queenstown Gateway (5m) Ltd (QGL), as a good example of what successful large format retail is becoming in New Zealand.

The Five Mile site, at Frankton, counts Briscoes, Rebel Sport, The Warehouse and Countdown among its big box tenants but they are mixed in with smaller New Zealand brands such as Hannahs and local Queenstown businesses. The site currently has two new buildings under construction including a Sudima Hotel and a pub. QGL has plans to add a further five buildings to the site over the next five to seven years.

“It’s out of the congestion at the centre of town. It’s easy to find a park right outside where you need to go,” Beasleigh says.

Under construction

With the future looking more certain compared to the early days of lockdown, developers are pressing on with their pipeline of planned big box retail projects.

Beasleigh says there is a good amount of development activity to meet the growing demand and address the current shortage of stock for eager tenants.

“Most are projects that were already in the pipeline or underway pre-COVID, but there is certainly fresh impetus to get them completed. The pandemic certainly hasn’t put any large format projects on hold,” he says.

“Areas like Silverdale are growing and need more capacity. Warkworth is growing and needs to be on the radar. Basically, if you see an area that currently has a McDonald’s and a BP, it’s likely that in the next few years it will be joined by something like a Bunnings and a supermarket.”

Download full article (PDF)   

Subscribe to receive the latest commercial news and insights from Bayleys Total Property