The recent announcement that Farmers Trading Company were going to open a new large store in Sylvia Park shopping centre in Auckland has opened up a range of new questions as to the strength of Sylvia Park and the potential decline of other shopping centres.
Farmers have stores in Pakuranga, Botany, Manukau and Newmarket shopping centres and all are within a maximum 5 - 9 kilometre radius of Sylvia Park. So what does this mean to Sylvia Park and the other centres?
"Sylvia Park is now by far the largest and most effective shopping centre in New Zealand."
The Kiwi Property owned shopping centre has outmanoeuvred its competitors with extensions and new retailers over the past few years and they are now adding a new commercial building and further retailers including the new Farmers. Seldom is a centre so complete with almost all major New Zealand retailers represented in the one environment. Add to that, new international retailers such as H & M, a smart food and beverage environment, a cinema complex, together with a railway link and the concept is unbeatable. So is there an Achilles heel? Ironically, the growth and range of retailers is the Achilles heel in itself. Getting to the shopping centre off a very busy arterial route and finding a car park is a nightmare.
"Adding more car parking may sound like the answer, but it will never satisfy the demand at peak periods when customers want to get into the centre, do their shopping and get back home."
Simply put there are no answers to customer frustrations and whilst Sylvia Park is by far the best retail offering in New Zealand, it will continue to frustrate itself through its inability to handle traffic flows in a controlled and stress free manner.
More to the point however, is the impact on nearby shopping centres. One would have thought that all competitors would have taken the opportunity to beat Sylvia Park at its own game and offer shoppers more of the same but most importantly better parking. They have all failed. In fact, it seems that Pakuranga Plaza which sits well located at the junction of one of Auckland's busiest intersections, has effectively flown the white flag. Most of its retailers have abandoned the centre and with Farmers Trading announcing an opening of a large new store at Sylvia Park, the retention of Farmers at Pakuranga is most unlikely given the proximity of Pakuranga to Sylvia Park. Apparently, Pakuranga has also abandoned its plans for a major $500 million redevelopment so the retention of Pakuranga Plaza as a major retail hub looks to be under serious threat.
In days of highly competitive behaviour, and traditional retail under threat from the likes of a circling Amazon, it is prudent as a shopping centre owner to continue to improve the offering. Kiwi Property did not sit on its laurels but continued to expand and improve its offering. Other centres have failed to respond and the shift in retail power is remarkably obvious. What will be key for the future however is the availability of parking, and the door is still ajar for competitors to Sylvia Park to make a move!!!
In the third of a series on electronics retailing in New Zealand, we’re looking at JB Hi-Fi.
JB Hi-Fi has achieved a lot in its ten years in New Zealand. The company acquired the 11-store Hill & Stewart chain in 2007. By 2010, that brand was no more, with the stores either converted to JB-Hi or closed.
Sales rose from around $70 million a year in the Hill & Stewart days to over $230 million currently. JB Hi-Fi has 15 stores, covering all New Zealand's major cities, and aims for price leadership. It achieves very high sales per square metre, very competitive prices, and has seen off several other competitors.
But one thing it hasn’t ever done is make much money in New Zealand. EBITDA ranged from AUD $4-$5 million a year over 2012-2016, and was even lower in the previous years. Taking out depreciation, interest and tax doesn’t leave much space for profit. In 2017, EBITDA dropped to just $600,000, and JB Hi-Fi wrote off AUD $16 million of value in the New Zealand business as an impairment charge.
JB Hi-Fi are now looking at a two-year strategy to improve their New Zealand performance. That should include boosting their gross margins. In New Zealand, JB Hi-Fi has gross margins at around 18-19% of sales, whereas they achieve 21-22% in Australia (most of the other New Zealand electronics retailers are around this range too). To build a sustainable business here, JB Hi-Fi might just need to be a bit less competitive.
In the Press
Local Media Highlights Wednesday 13 December 2017
Auckland rates poorly with Christmas shoppers, shopping in towns offers more satisfaction
Auckland rates poorly for shopper satisfaction, particularly during the lead-up to Christmas, according to the Customer Radar study released today. The study, which surveyed operations of 1500 stores across New Zealand for six months, found shoppers started to become disgruntled from the middle of November and overall customer satisfaction dropped sharply to a year-low in the middle of December.
New Government told KiwiBuild will be risky but transformational
Housing Minister Phil Twyford was told by officials that his signature KiwiBuild plan will be risky. Officials from several ministries prepared a briefing for the new Minister to be delivered as he entered office on achieving Labour's housing policies. It was publicly released on Thursday.
Wellington business confidence plunges, following national trend
Confidence among Wellington businesses has plunged, with a majority expecting the national economy to deteriorate in the coming year. The Wellington Chamber of Commerce's quarterly business confidence survey found that a net 13 per cent of businesses surveyed expected New Zealand's economy to go backward, the first time the reading has been negative since 2009.
Expected retail trends for 2018
The retail industry is a fast-paced, uncertain minefield, where retailers must keep up with the latest trends and expectations to survive in the market. This year saw many trends come in and out, but what can retailers expect to face from 2018?