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Retailers Shrink & Shopping Centre Values Fall

Retailers are hoping tax offsets deliver a much needed boost in spending after a weak close to last year continued into 2019, while store closures and downsizing impact on centre landlords.

Deloitte’s latest quarterly Retail Forecasts report predicted retail turnover growth is expected to slow to as much as 1.5% before picking up next year.

The report says growing employment hasn’t been enough to offset the impact of stagnant wage growth and declining wealth on household budgets, limiting consumer spending power.

Deloitte partner and principal author of the report David Rumbens said people are reining in their spending, but there is hope on the horizon for the second half of the year.

“March quarter retail data confirmed our view that consumers are just not willing to spend as they once were,” Mr Rumbens said.

“While the first half of the year is constrained by weak income growth, the latter half will likely receive a boost as monetary and fiscal stimulus work together for the first time in over a decade.”

Mr Rumbens said we should see a surge in spending in the September quarter as tax returns are processed, particularly on big ticket items in the household goods sector that has been hit hard by low wage growth and declining house prices, as well as online competition.

He cited the recent Reserve Bank rate cut and forthcoming tax offsets for low and middle income earners as potentially providing some ease to highly indebted households.

Whether extra money in consumer pockets translates into retail spending over debt repayment remains to be seen.

Increased online competition is expected to become a bigger factor once the sugar hit of tax cuts dissipates.

Department stores are reportedly struggling to remain competitive as sales contract by 1.2 per cent, hurting profits and forcing some retailers to close or downsize stores.

The Kmart Group recently downgraded forecasts as Target stores around the country close.

Woolworths is shutting down around 30 Big W stores, meanwhile higher end department stores like Myer and David Jones are shrinking their footprint to focus on improving customer experience.

David Jones has also been subject to sale rumours, but is expected to come nowhere near the $2.1 billion it commanded in 2014, due to a low appetite for Australian consumer retail among international investors.

The downsizing of stores is also hurting retail landlords as anchor tenants either shut up shop or seek lower rents.

The Australian reports the Stockland Group’s shopping centre portfolio is expected to fall in value, after rival Vicinity Centres revealed its shopping centres fell 1.3 per cent.

Stockland said it’s sold $300 million in retail assets.

Wesfarmers recently flagged a focus toward shorter leases.

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