Analysts say some malls will find it hard to remain viable in the months ahead. Photo / Getty Images
Malls could face the brunt of carnage in the retail sector if spending slows down over the next few months, a survey conducted by the Herald has found.
A survey of 60 retailers at the Westfield Albany shopping mall, which asked retail managers if they were confident the store would trade well over the remainder of the year, has found that retailers are mixed about their earnings outlook over the next three to six months.
Eighteen retailers said they were not confident of strong sales over the rest of the year, and 19 said they were optimistic that they could sustain current revenue levels.
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Nine retailers were undecided about trading conditions ahead. The managers of 14 retailers - most working at large retail chains - declined to comment.
The latest Stats NZ figures show seasonally adjusted retail spending on electronic cards rose 78.9 per cent in May after falling 47.5 per cent in April. Economists had expected a lift of about 60 per cent, according to Westpac.
Stripping out fuel and vehicle spending, core retail spending was up 72.6 per cent. The lift was driven by a 10-fold gain in spending on hospitality and six-fold increase in apparel.
Sentiment among consumers appears rosy as New Zealanders continue to spend up large, but this is not expected to last. Spending has been up since the reported numbers of new Covid-19 cases consistently stayed at zero.
The retail sector has begun to feel the financial effects of the economic downtown. Once the wage subsidy extension ends in 12 weeks, the full affects are expected to be realised.
Major retail chains have already begun shaving their costs and downsizing their store footprints. New Zealand's largest listed retailer The Warehouse Group this week revised store closures, announcing that it would shut nine stores throughout its network and axe more than 1000 jobs, including 130 from its head office.
Max Fashions also announced this week it would close 17 stores - almost half of its locations - after a zero balance sheet during the seven weeks of lockdown, as did Kiwi fashion designer Ingrid Starnes, saying it planned to close its two Auckland stores and wind down its business and continue as a online made-to-order brand.
This follows store closure announcements by NZX-listed Michael Hill International - nine stores worldwide, including three in New Zealand - and Smiths City, Bunnings and South Island department store H&J Smith.
Analysts anticipate more closures, which poses the question of what that means for shopping malls, which could face the prospect of empty tenancies as the impact of Covid-19 bites.
Retail NZ chief executive Greg Harford said some malls would struggle with viability in the mid-term as the impacts of the pandemic are realised and more stores shut.
"Malls are always going to have a place, the challenge though is two-fold; there's the pressure on retailers at the moment and you're going to see stores closing and undermining the viability of some of those malls, particularly in the less frequented malls.
"If you're a suburban mall in an area where there's not a large population and you don't have a number of high-profile anchor tenants it is going to become harder for you to remain in business."
Harford said he did not believe New Zealand would experience widespread mall closures, but it would likely see redevelopment of some centres.
This could mean less clothing and footwear retailers and more hospitality venues, even doctors surgeries and other health-related services.
Some malls could even evolve to house more entertainment venues such as bowling alleys or arcades, Harford said. "You'll see them evolve rather than disappear.
"There are some suburban malls in New Zealand, which probably are a bit marginal, but they will be repurposed."
The Herald's survey found that many mall-based retailers had been trading at a high, up on levels pre-Covid and before lockdown. Some described recent conditions as those similar to the typical elevated Christmas period.
Others said they had already started to experience a drop in sales, and expected this to continue. Some noted the large number of merchants with sales, offering unusually large discounts.
Harford said the next three to six months would be rocky for retailers and mall operators as the recession takes affect and consumers tighten their purse strings.
"Retail is under pressure like never before and we are seeing that some stores will be closing and it could well be difficult to fill those spaces in malls in the short term.
"We've already seen a number of major retailers make big changes in their operations to take account of the economic conditions - that is likely to get worse before it gets better."
Online spending in New Zealand more than doubled through lockdown. A large proportion of this has continued even after shops reopened and this is also likely to affect the viability of physical stores.
Campbell Barbour, chairman of the New Zealand Council of Retail Property, said retail was tough going into Covid and would remain tough coming out of it - but he said malls would not close or get smaller as a result of Covid-19.
Shopping malls today were made up of a less apparel and footwear retailers than they typically were decades ago, which made them more immune to the knock-on affects of fashion store closures, he said.
"Our malls in New Zealand have changed a huge amount over the past 10 years, they are way more diverse, the diversity of business activities going on inside a modern retail centre are quite different to what they were 15, 20 years ago; there's a lot more personal services, a lot more health and beauty, more food and dining," Barbour said.
In the post-Covid world New Zealanders would visit shopping malls just as frequently, albeit perhaps spending less. Malls would not get smaller as a result, he said.
"Has Covid changed the game for retail? The answer is no it hasn't because the game was already changing. The speed of the game change is probably just accelerated," Barbour said.
"What's going to happen is the goods and services and activities going on inside, the offer, is going to evolve and modify."
New Zealand malls tended to be immersed within their local catchment areas, opposite in nature to the massive centres found in the United States, which had found themselves in trouble with declining foot traffic in recent years, so were more immune to risks, he said.
Asked about the risk of mass empty stores within shopping centres in the months ahead, Barbour said he did not believe mall property owners would face tenancy issues.
"There will inevitably be commercial casualties out of Covid-19, that's inescapable. What property owners will do is repurpose, re-tenant and re-lease those places to businesses that are fit for market at that point of time.
"Our shopping centres tend to be a little bit more flexible and malleable than a lot of those overseas."
He agreed that health services such doctors could occupy retail property within malls: "Health and wellbeing is now part of the fashion industry."
Auckland University of Technology professor Dr Rouxelle de Villiers, specialising in sales and marketing, said Covid-19 had already changed consumer behaviour. Spending in recent times appeared rosy, and in some cases better than pre-Covid levels, because of what she described as "pent demand" due to lockdown.
She said trade for many retailers had improved after lockdown as many consumers had so far been unaffected by the pre-empt recession. But she warned that a two-month halt to the economy would result in tough times ahead.
"Worldwide, economists are predicting recessions so people will tighten their purse strings like they normally do when they see a recession coming."
De Villiers said luxury premium retailers would continue to trade well, as would those at the bottom end of the market, while mid-market businesses would be in for a tough ride.
Despite more inevitable store closures, de Villiers said malls were not likely to close because of Covid-19, and consumers were likely to visit their local malls rather than venture out to the bigger ones.
"People are going to be more community-spirited and there will be a rise in the patriotism of buying locally - and not just nationally."
A spokeswoman for jewellery chain Swarovski said trade in the Albany Westfield store was likely to drop in the months ahead. She said before lockdown consumers were happy to spend money on jewellery, but now consumers were more cautious - and looking for big discounts.
The store manager told the Herald making a sale pre-lockdown happened fairly easy, on average within about 15 minutes, now it took about an hour, even with a sales promotion.
"Shoppers are after a saving but they don't think the price is low enough to make them go for it," she said.
"Before Covid-19, shoppers had stable work so they could buy something they really liked, but now they have to be very careful spending any pennies."
The Government has committed funding to the sector in an effort to support future plans.