Smaller stores face rough weather in major malls

More than one-third of retail outlets in the country’s big malls are controlled by smaller, independent players, raising the risk of further store closures as government pandemic assistance programs wind up, according to an analysis by the PAR Group.

The analysis of 31 major malls – covering nearly 10,000 tenancies – reveals that 37 per cent are run by small business owners, with between one and three outlets in their control. Those shops are typically takeaway food outlets and health and beauty outlets.

Shopping centre owners and landlords have been hit hard. Getty

Retailers with four to 10 stores in their stable, typically smaller fashion brands, account for 18 per cent of tenancies across the big shopping centres.

The largest retail chains that operate more than 25 outlets, such as Vodafone and Flight Centre, account for 17 per cent of retail outlets.

The reliance on small business highlights some of “the potential issues with the tenancy mix” in the major malls as government support programs including JobKeeper, end after March, the report warns.

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“While these government programs have assisted small retailers to continue trading throughout the pandemic, any significant changes to consumer spending, in particular discretionary spending, could potentially leave these retailers vulnerable,” the report says.

“This has ramifications for shopping centre owners, as they face the risk of store closures of small businesses which have insufficient financial reserves to trade profitably in a post-COVID-19 retail environment.”

The PAR researchers comprise industry veterans Anthony De Francesco of Real Investment Analytics, Rob Ellis of the Data App and Damian Stone of Y Research.

In other findings, the analysis notes the risks that would flow from consolidation among big retailers, and the increase in demand from click and collect services following the accelerated take-up of e-commerce during the pandemic.

This month Citi analysts issued a bearish outlook for the big retail property landlords, including Scentre, which runs Westfield malls, and Vicinity Centres, which has the country’s biggest mall, Chadstone in Melbourne’s south-east, in its portfolio.

“We believe retail REITs face a difficult operating backdrop as we enter 2021, with e-commerce increasingly taking share, and weighing on bricks-and-mortar retailers’ margins, over time,” wrote City analysts Adrian Dark, Suraj Nebhani and Akshat Agrawal.

“We expect retailers to reassess their store portfolios more critically post-COVID-19, with reduced rollout-increased closures driving market rents lower, given relatively fixed supply of retail space.”

The impact of COVID-19 could reduce the income from major malls by more than 15 per cent, worse than the consensus forecast hit of about 10 per cent, according to Citi.

“Shopping centre book values also appear to embed assumptions that we see as quite optimistic, even by pre-COVID-19 standards,” they wrote.

“We therefore believe that the two key drivers of retail REIT prices – earnings forecasts and underlying property values – remain in a downgrade cycle, which will weigh on stock performance.”