The Australian retail sector and the broader economy are undergoing significant change. Many suburban retail centres and high streets face serious challenges, with lower-amenity centres in disadvantaged regions particularly vulnerable.
Retail centres contribute to surrounding residents' economic and social wellbeing. However, the benefits these centres provide - including local employment, retail and service convenience, and opportunities for community interaction - are under threat. Declining suburban retail centres and high streets need government support to stay viable into the future.
The bricks and mortar retail challenge
Traditional bricks and mortar retail has been declining for years, and the global COVID-19 pandemic has exacerbated the issue. Australia’s traditional retailers are facing many challenges, including:
- Growth in online expenditure. The volume of retail spending shifting online is increasing rapidly. Total online retail spending grew in Australia from $1.11 billion in November 2016 to $2.12 billion in November 2019, and $3.63 billion in November 2020 (ABS 2020). Large traditional retailers like Woolworths and Coles adapt fast, transforming their online services and opening ‘dark’ online shopping warehouses.
- Low wage growth. Low productivity growth evident before the pandemic is likely to endure, linking directly to low wage growth. Stagnant incomes impact discretionary household spending, such as retail.
- A shifting preference towards experiences. Increasingly, consumers prefer to spend their income on ‘experiences’ rather than physical goods – especially younger generations. These include such purchases as hospitality, travel, personal care, and festivals.
- Rising housing costs. Housing costs continue to increase, meaning Australians have to direct a greater proportion of their incomes toward mortgage repayments and rents and away from discretionary purchases.
- Higher household saving rates. In general, economic uncertainty induces households to save a greater proportion of their income and spend less on retail purchases. In common with what occurred during other economic shocks, such as the global financial crises, household savings in Australia grew significantly during the pandemic. With economic uncertainty likely to endure, savings rates could remain relatively high for the foreseeable future.
The chart below outlines Australia’s retail sector between 2000 and 2020, showing a dramatic drop in retail expenditure after the Global Financial Crisis in 2009.
Data on retail spending between 2016 and 2020 shows that online expenditure is taking an ever-increasing share of the retail pie, with monthly online retail expenditure growing from $9.2 billion in December 2015 to $25.2 billion in June 2020. Bricks and mortar retail has not fared as well, with several quarters reaching negative growth.
What is the future of traditional retail?
It is probable that, with an increasing proportion of retail expenditure shifting online, the per capita bricks and mortar retail spending may have peaked. Extrapolated data in the chart below supports this claim.
If we assume that annual growth in online expenditure continues at 15 per cent per annum (it has grown at an average of 27 per cent per annum over the past four years), and that overall retail expenditure continues to grow at 1.9 per cent per annum (equivalent to the average over the past ten years), by 2029/30:
- total retail expenditure will have grown from $336 billion to $396 billion
- around 29 per cent of retail expenditure will take place online
- bricks and mortar retail expenditure will have declined from $303 billion to $281 billion, even though Australia’s population would likely have grown significantly over the period.
These assumptions are conservative. The reality is that online expenditure could grow significantly faster and that the share of expenditure going to traditional retailers could decline even more rapidly. We need to consider these possibilities - and their implications in retail centre planning - to meet future generations' social and economic needs.
Five ways governments can help revitalise and transform retail centres
The first thing to do is throw out old-fashioned retail planning assumptions.
Retail centres designed for consumers from the pre-internet era are becoming obsolete, and the surrounding local communities are bearing the economic and social costs. However, there are ways to help transform and revitalise suburban retail centres and prepare for challenges ahead. Here are five ideas:
1. Be bold and innovative with planning tools
Be bold and innovative with strategic and statutory planning tools. An example may be to upzone parts of poor performing centres, using medium-density housing to ensure a critical mass of activity within the remaining retail space. Governments may also consider value capture mechanisms that socialise the value generated (resulting from rezonings) to invest in physical and amenity improvements across the remaining centre.
2. Revisit activity centre strategies
Revisit activity centre strategies ensuring floorspace levels are likely to be sustainable in the future retail environment. Adopt deliberate strategies to manage reductions in the quantity of floorspace in the more vulnerable centres. Sustainable approaches to centre planning would also reconsider what constitutes a sustainable level of floorspace in growth areas.
3. Develop strategies to boost centre competitiveness
Develop strategies to allow centres and local retailers to better compete with online retailers, for example:
- Invest in improving the centre experience.
- Optimise convenience, making access by all modes as easy as possible, within reason.
- Consider a Community Wealth Building approach to local economic development, which, among other things, would foster improved integration of centres with their surrounding communities.
- Set up programs to help small businesses invest in dual bricks and mortar and online sales channels.
4. Activate centres with services, events and flexible spaces
Co-locate or relocate government functions and services to suburban retail centres to strengthen their role as community hubs, where possible.
Explore opportunities for more active public space management, such as events, programs, and festivals. Work with members of local communities to reactivate spaces, and improve social cohesion and inclusion.
Encourage greater flexibility in how spaces can accommodate changing uses from traditional retail to other uses, such as gyms or yoga studios and office use or co-working space. Retrofit spaces into affordable workspaces and encourage a local market to relocate, both of which will attract vast and diverse audiences.
Pop up stores and temporary leases are also effective strategies for activating suburban centres and high streets and provide a low-cost solution that relies primarily on the creative and social capital within a community. Inspiring examples include Meanwhile Space and the Empty Shops Network in the UK and Renew Newcastle in Australia.
5. Get innovative with housing provision
Use innovative planning approaches to deliver dwellings adjacent to centres, which support:
- local expenditure and activation of public spaces
- opportunities for elderly residents to age in place close to health services in communities they know
- more affordable housing
- housing choice, particularly in areas supported by transport infrastructure.
Governments have an important role in helping centres remain viable and adapt to economic and social change. By securing the future of centre networks, governments retain their status as essential drivers of social and economic opportunity for surrounding community members. In doing so, governments need to recognise that retailing in Australia is changing as a direct consequence of converging retail, social and technological factors.
Centres and centre networks that respond nimbly will be well-positioned to succeed in coming decades; those that lag will find it increasingly difficult to retain the critical threshold of retail expenditure required to remain viable. This loss of centre viability threatens to impose significant and ongoing economic and social costs on Australian communities.