E-commerce giant Amazon recently announced it was establishing its first 'fulfilment centre' (shipping warehouse) in Dandenong in Melbourne, creating 'hundreds' of jobs in the process. Many have thought that this is the latest nail in what could become a series of coffins for Australian retailers.
It's not just conventional retailers like JB Hi-Fi Limited (ASX: JBH) or Greencross Limited (ASX: GXL) that stand to be affected by Amazon's arrival. The secondary effects could stretch much further, and include large owners of retail space like Stockland Corporation Ltd (ASX: SGP) and Scentre Group (ASX: SCG).
It will be much harder to lease properties at attractive rates if Amazon really hurt bricks and mortar retailers. Shopping centres depend on a network of popular retailers to draw foot traffic. This virtuous cycle could reverse if retailers begin closing down – leading to less foot traffic in shopping centres – which will ultimately mean that more retailers will close down.
The third-order consequences are also an interesting one, because a number of businesses that don't have anything to do with Amazon, like Collins Foods Ltd (ASX: CKF) and Flight Centre Travel Group Ltd (ASX: FLT) are surprisingly dependent on shopping centre foot traffic to drive customer numbers.
Is Australian retail doomed?
However, all of that discussion pre-assumes one thing – that Australian retail is going to die. I simply don't think that this is the case. I do think that there will remain a place for retail 'centres' (be they shopping malls, big box stores, standalone small stores, or whatever), for a number of reasons:
- The desire for people to congregate, get out of the house, see and be seen, and go window shopping
- The ability to see, touch, and try before you buy that you get in a retail store but not online
- The ability to get a technical opinion from a salesperson (for example, when buying a lawn mower, computer, doing a DIY project, or more)
Those are things that are difficult to replace, although the last one could be at least partly replicated online. Instead of the doom and gloom that is forecast, I think it's more likely that the nature of retailing will simply change. Successful companies will adapt and the ones that don't…Won't.
