There are really only two kinds of business model. You can bring products and services together – bundling – or you can pull old bundles apart.
Newspapers were a great example of bundling. The advertising had nothing to do with the journalism other than the financing of it. It was the variety and depth of the journalistic bundle that created a mass audience attractive to advertisers.
The arrival of the Internet broke that model. Carsales.com, Seek and realestate.com.au took the classifieds while brand-based advertising went primarily to Google and Facebook.
The arrival of Amazon, the argument goes, will destroy Australian retail just as the Internet destroyed newspapers. Amazon is a giant bundler offering low prices, incredible range and astonishing distribution. That spells trouble for retailers and, by extension, shopping centres.
For retailers lacking a point of difference with online competitors, there’s some truth to this. Credit Suisse1 found that Amazon’s arrival will most affect Myer, Harvey Norman, JB Hi-Fi, Supercheap Auto, Rebel, Amart Sports, Big W, Kmart and Target.
The question for investors in shopping centres is whether malls can adapt to what is likely to be reduced demand for floor space from troubled retailers. History suggests they can, through their own form of unbundling and a number of other factors:
1. The best malls have already adapted to the Amazon threat
As we explained in part 2, department stores – a bundle-based business model in its purest form – have already shrunk. The floor space that may otherwise have been a department store has been taken up by new international retailers like H&M, Uniqlo or Zara, plus outlets that don’t face online competition – nail salons, gyms, restaurants and the like. The result is that in the space once occupied by a few retailers there are now many more smaller outlets. This actually enhances diversification of a shopping centre cashflows and increases its attraction.
The increased variety makes the best shopping centres more attractive, leisure-based destinations. There might be more adjustment to come but the best managers have already shown an ability to adapt, which is but one reason why Amazon won’t “kill” Australian retail.
As Matt Jensen, founder of M.J. Bale told Commericalrealestate.com.au2
“The theatre of shopping is expected to be quite compelling these days. You’ve got to entertain people as they part with their money and they’re today looking for brands that do that.”
Even Myer has cottoned on (sorry about that – Ed). Its new Warringah store on Sydney’s northern beaches features mobile recharging points, free wifi and click-and-collect ordering services. The menswear department has a barber, fussball and air hockey while womenswear features vintage photo booths. The aim is to deliver a shopping experience against which online retailers cannot compete.
2. New chains are queuing up to replace those Amazon does threaten
But what happens if local brands fail to adapt to the extent needed? Well, there’s a plethora of overseas brands queuing up to take their place, as this table from the Australian Financial Review makes clear: