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Retailers feeling the pressure from expansion of overseas entrants

Retailers are facing pressure from the overseas brands, higher rents and lack of demand for discretionary items. Photo: Rob Homer RZHThe appointment of voluntary administrators to the owner of the Marcs and David Lawrence brands, Webster Holdings on Thursday, reflects the combativeness of the retail sector and how perilous if can be if consumers swing away.
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Fuelling this is the arrival of the overseas brands, which while not quite direct competitors to the Webster labels, are still turning the screws on local retailers.

The shift in work practices, with more people working from home and increasing casualisation, has also led to less need for business attire across all genders.

Higher rents and a large foot print of stores makes life hard for retailers, particularly when cash is now needed and used for others things, such as mobile devices, and a greater variety of leisure activities.

That leaves less money in the household kitty for discretionary spending and apparel has felt the biggest pressure. This also forces the stores into longer and deeper periods of discounting in order to clear the stock.

According to the receivers, insolvency specialist Rodgers Reidy, they will now begin a review of Webster Holdings, leaving 1200 workers in limbo.

Reflecting the march of the overseas players is the Swedish clothing retailer Hennes & Mauritz, H&M, which  reported a rise in fourth quarter net profits, despite pressure on costs by the strong US dollar.

The company reported profits of 5.9 billion kronor ($A884 million), compared to 5.5 billion kronor in the corresponding period the year before.

The group operated 4351 stores, including franchises, at the end of November. That was an additional 427 stores compared to 2015. In , it continues to open more stores across capital cities and regional areas.

But it is not just the individual retailers putting on the pressure, as investors are also snapping up the malls.

According to the CBRE in its latest Retail MarketView data, 2016 had a record $1.8 billion in CBD retail transactions as foreign investors continue their assault on the n retail investment market.

The CBRE fourth quarter 2016 figures reveal that nationally, retail yields compressed on average 50 basis points last year, with the largest compressions experienced by neighbourhood shopping centres, being 60bps and large format retail, also 60bps.

CBRE senior research manager, , Danny Lee, said the contribution from foreign investors increased in 2016 to account for 30 per cent of total investments, an increase over the 25 per cent experienced in 2015 and well above the long-term trend of 10 per cent.

“Foreign investors have a lower required return expectation than domestic investors and have purchased some of the largest retail assets in 2016, particularly in Melbourne and Sydney,” Mr Lee said.

Mark Wizel, national director, n retail investment properties at CBRE, said investors were viewing retail as the most attractive asset class due to it having the best risk adjusted return.

“The retail sector is now contributing 31 per cent to total commercial property transactions, compared with 25 per cent two years ago,” Mr Wizel said.

“Rent growth coupled with yield compression saw strong growth in capital values, particularly in Sydney CBD, which has encouraged some owners to take advantage of conditions and dispose of assets. Foreign buyers have been actively seeking CBD assets and are willing to pay a higher price to acquire them.”

Mr Wizel said shopping centre yields continued to firm over the year, with regional, sub regional and neighbourhood yields compressing by 20 bps, 40 bps and 60 bps respectively.

“Neighbourhood shopping centres in all states including Tasmania continue to remain high on the shopping list of a range of private, corporate and institutional investors. However, it has been the emergence of the Chinese buyer for such assets that is starting to add significant pricing competition into the sector with yields continually achieved around the country at less than 5.25 per cent,” Mr Wizel said.

“Large format retail is also attracting foreign investors, particularly Chinese buyers who are seeking exposure to retail and with the lack of shopping centres being made available to the market are aggressively chasing large format retail assets.”

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