Department Stores

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<p>GUEST OBSERVER</p>
<p>Retail sales disappointed in July coming in flat vs expectations of a 0.3 percent gain. Annual growth slowed to 2.7 percent with the monthly trend estimate tracking a very weak 1.1 percent annualised pace.</p>
<p>There are some caveats to the July number however. In particular, the storetype breakdown showed an unusually large fall in department store sales – down 6.2 percent in the month in seasonally adjusted terms, coming off a decent 4.5 percent gain in June.</p>
<p>That volatility may reflect shifts in the timing of sales which can be exaggerated by seasonal adjustment (we had similar issues in 2013 and 2012 with a strong June followed by a sharp fall in July that mostly reversed in August).</p>
<p>Weather conditions may also have played a part with an abnormally mild July (the 5<sup>th</sup> warmest on records back to 1961 according to the Bureau of Meteorology) although this did not stop clothing retailers from posting a 0.3 percent gain.</p>
<p>Ex department stores, retail sales were up a much more respectable 0.4 percent mth, 3.1 percent yr.</p>
<p>Looking across other categories: basic food retail bounced back with a 0.7 percent gain following a very weak June (–0.5 percent mth, the second biggest monthly decline in the last six years); household goods disappointed again with a 0.7 percent fall, ‘other’ retail rose 0.2 percent and cafes and restaurants saw a robust 1.2 percent gain.</p>
<p>As noted in previous reports, some of the ‘mixed messages’ from retail at the moment likely reflect widely diverging performances by state with consumers in the growth centres in the south-east boosting discretionary spend but those in mining states cutting back.</p>
<p>For total sales this pattern reversed somewhat in July with sales softer in Vic (–0.6 percent mth) and NSW (–0.2 percent mth) vs modest gains in Qld (0.5 percent mth) SA (0.5 percent mth) and WA (0.3 percent mth).</p>
<p>Note that all sales figures are in dollar value terms so include any price effects from discounting.</p>
<p><em><span>Matthew Hassan</span> is senior economist with <a href="https://www.westpac.com.au/" target="_blank">Westpac</a>.</em></p>
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Australian July retail sales flat: Westpac's Matthew Hassan

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<div>On the face of it a better result for retail trade in February 2018, with a +0.6 per cent increase in turnover, and the January result revised up slightly to +0.2 per cent. </div>
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<div>Under the hood, though, this was another soft result, with department stores clearly under intense pressure.</div>
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<div>Total retail turnover in February was $26.45 billion in seasonally adjusted terms, so only a marginal +0.2 per cent higher than we saw back in November when the i-Phone X was unleashed and Black Friday spiked the results.<br><br>And the February figures for Sydney and Melbourne would have been enhanced by Chinese Lunar New Year falling later this year than last.<br><br>You can click on the graphics to enlarge them. </div>
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<div>Looking through the monthly noise, retail turnover in trend terms was a modest +2.7 per cent higher over the year. </div>
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<p>The monthly rebound in turnover was driven by New South Wales (+1.1 per cent) and Victoria (+1.1 per cent), offset by a decline in Western Australia (-0.6 per cent).  </p>
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<div><strong><span style="text-decoration: underline;">Amazon arrives</span></strong></div>
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<div>These figures are of particular interest since the survey should include Amazon Australia sales.</div>
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<div>If there's one thing we do know it's that there has been widespread industry discounting - indeed, you can take a walk around any shopping mall and see this for yourself.<br><br>We'll see this better in the quarterly results, which will shed more light on price inflation (deflation) versus volumes as a driver of retail turnover. </div>
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<div>Price discounting in part helped to drive a +1.5 per cent rebound in department store turnover in the month, but this came off the back of a series of monthly declines, with turnover remaining well below the levels seen in October last year. </div>
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<div>The rolling annual trend numbers over the the longer term tell the story better - department stores have never faced such sustained pressure since the statistician began measuring numbers. </div>
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<p>Tellingly, online retail accounted for 5.1 per cent of total turnover in the month, up from 3.6 per cent only a year earlier, an alarming rate of increase from the perspective of traditional retailers. </p>
<div>Myer has been one high-profile casualty with its share price trading at around 36 cents (down from a float price of $4.10) but there are plenty of others...and more in the offing. </div>
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Department stores under intense pressure: Pete Wargent

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<p>Retailer Pepkor’s first Australian Debenhams store in Melbourne, which opens next week, gives a peek into what a department store may look like in the future.</p>
<p>The store is a small in size and stock from a typical Myer or David Jones store, but expects to offer a curated range of brands chosen with the Australian shopper in mind.</p>
<p>Debenhams is a British multinational retailer which operates under a department store format. UK retailer Debenhams has identified Australia as a strategic priority and aims to triple online sales in its first year operating in Australia.</p>
<p>Pepkor south-east Asia's department stores managing director Graham Dean told The Australian Financial Review that the new format was the way forward for the department store sector, which is facing increasing competition from online stores and global bricks-and-mortar retail chains.</p>
<p>The official opening is on October 24.</p>
<p>"We have basically come up with the concept for this market because we believe the future of a department store isn't to trade in a 10,000 square metre space over multi levels," said Dean, a former Myer executive who also runs Pepkor's Harris Scarfe department stores.</p>
<p>He added that the modern fashion and beauty customer is time poor and would like the retailer to do the curating and come up with the “best possible range."</p>
<p>The smaller format will generate higher sales per square metre than a traditional department store but staff ratios will be higher and they will be trained to work across all categories and brands.</p>
<p>The Debenhams store is the anchor tenant in JPMorgan's refurbished St Collins Lane retail centre in Collins Street and occupies the ground and lower ground floors. It will span 3,600 sqm. </p>
<p>The range of 30,000 SKUs includes international cosmetics brands and exclusive women's, men's and homewares brands from Debenhams, including the Duchess of Cambridge's favourite designer Jenny Packham, Siren by Giles Deacon, Butterfly by Mathew Williamson, Henry Holland, J by Jasper Conran, Hammond and Co and Racing Green.</p>
<p>The four-level mall has struggled to find tenants to occupy shops on upper floors so far, but Dean said the site was selected to take advantage of the "ant track" from Flinders Street to Melbourne Central, which attracts about 17,500 people a day.</p>
<p class="selectionShareable">“We are not a traditional department store and that is the key,’’ Mr Dean told <em>The Australian.</em></p>
<p class="selectionShareable">“We are small format. Myer would be around 10,000sq m in average size; we are 3600sq m and we will never go above 4500sq m in any of the stores we open, so we are not trying to compete in a traditional department store sense.</p>
<p class="selectionShareable">“Therefore we don’t feel we are subject to the same pressures a Myer or David Jones have. We don’t have kidswear; we aren’t trying to sell toys; we won’t sell LED TVs in a market where you have a JB Hi-Fi better at it, or iPads or any of those items. We are in the beauty business, the fashion business and it is curated to fit the space we occupy.’’</p>
<p class="selectionShareable">Pepkor has links into the Australian retail market. Global retailer Steinhoff International bought Pepkor three years ago for $6.7 billion, and it owns a large portfolio of retailers in Australia, including Best &amp; Less, Harris Scarfe, bedding chain Snooze and furniture retailers Fantastic, Plush and Freedom Group. Mr Dean said the Australian retail market had always been competitive, but there was a place for an operator like Debenhams, which aims to open 10 stores here.</p>
<p>Meanwhile Myer and David Jones are shrinking stores to improve productivity and opening smaller-format stores.</p>
<p>But with 15 and 20-year leases it will take time to significantly change their networks, observers noted.</p>
<p>In spite of the luxury brands, Debenhams intends to keep prices more in keeping with private labels at Myer, ranging from $99 for women's jackets to $399 for sequinned evening dresses.</p>
<p>"We're elevating the environment and service levels but not the pricing," said Dean. "It's got to be good value for money."</p>
<p>The four-level mall has struggled to find tenants to occupy shops on upper floors, but Mr Dean said the site was carefully chosen to take advantage of the "ant track" from Flinders Street to Melbourne Central, which attracts about 17,500 people a day.</p>
<p>The range of 30,000 SKUs includes premium international cosmetics brands and exclusive and private label women's, men's and homewares brands from Debenhams, including the Duchess of Cambridge's favourite designer Jenny Packham, Siren by Giles Deacon, Butterfly by Mathew Williamson, Henry Holland, J by Jasper Conran, Hammond and Co and Racing Green.</p>
<p>Mr Dean also promises to bring a touch of the British high street to St Collins, stocking youth fashion brands not available in Australia, such as Coast, Oasis, Wallis and Warehouse.</p>
<p>"We're elevating the environment and service levels but not the pricing," said Mr Dean. "It's got to be good value for money."</p>
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