It’s a long way from catering college, but John Schroder is confident he made the right decision to follow his father’s advice and go to university, rather than become a chef. Now group executive and CEO commercial property at Stockland, he oversees transactions for one of the property industry’s largest commercial players, including its retail business.
Stockland’s half-yearly results, announced last month, put a little shine on a sector that is increasingly being viewed with caution. Reporting a profit (net operating income) of $310 million, Stockland’s retail results report 8 percent growth in net income.
While Schroder seems to advocate a cautious approach, there’s no significant nod to negative sentiment when he discusses Australia’s retail landscape. The nation is fighting fit in retail, he argues, and it’s because we’re not oversupplied.
“For every man, woman and child in Australia, there’s about 2 sqm of retail floor space. In the United States, where there is significant oversupply, there’s 5 sqm. In Canada, there’s 3 sqm. The UK is slightly lower than Australia,” he notes.
“And why is that? Why have we had so many years here of what I call equilibrium in the demand and supply of floor space, which frankly doesn’t happen in offices? … In office sometimes you get this boom bust effect, because too much is built, there’s not enough takers for the space, the values go down.”
Similarly, Schroder argues, major anchor retailers in Australia, like Woolworths and Wesfarmers, are not logically going to build or lease too many stores “to cannibalise themselves”.
With a lack of speculative building in retail and robust population growth – even with internet leakage – we’re doing well.
Indeed, despite the harbingers of retail doom, Stockland has reason to be optimistic. It has a healthy retail redevelopment pipeline – Merrylands ($395 million), Shellharbour ($330 million) and Townsville ($200 million) are all on track and substantially leased.
“We expect to deliver very well, and not just from a leasing and a product perspective, but also from an internal incremental return perspective,” says Schroder.
In a further nod to Australia’s retail state, Schroder points to the relative good health of domestic centres compared to overseas malls. While he acknowledges “plenty of sale signs” in Australian shopping centres – due to retail price deflation, and issues with exchange rates, penalty rate and industrial relations – the US has “ghost malls”.
“Go on the internet and dial in ‘ghost malls’ in the United States. You will be horrified. But it’s because there’s 5 sqm per person in the United States. They’re grossly oversupplied,” he says.
“However, I need to be balanced here. There are many markets in America that are in equilibrium and [where] you can do very well.”
For Stockland, Australia also boasts markets where you can do well. A successful offer is very much about maximising the trade area and the customer base, Schroder argues. Many of Stockland’s assets are in key regional areas, where strong growth is a key point: in population, economy, GDP and other fundamental drivers (such as mining).
He says Stockland, which has a stronger presence in regional Australia than metropolitan at the moment, aims to be number one in a trade area – or a grudging number two with certain provisos.
“If you’re not number one, then don’t be there. And we sold Bay Village [at Bateau Bay] because we couldn’t get there. [There is] too much competition on the NSW Central Coast.
“Or if you are going to be number two, consciously be number two, but with a unique point of difference.”
Schroder also advocates a conservative approach to the balance sheet, and understanding retailers and consumers. He acknowledges the “robust change” occurring in the market, but he says that it’s for the better. Harking back 20 years to the entrance of offshore retailers, Schroder says that, with the exception of fast food retailers like McDonald’s and KFC, offshore entrants failed to muscle up.
“They all failed because they didn’t realise what the market conditions were in Australia and how Australian retail behaves,” Schroder says.
“Now that’s 1990, 1992. Now it’s 2012. [There are] quite a few offshore entrants coming into the country.”
And this time it’s different. Schroder points to the success of Spanish fashion retailer Zara as a good example. These new retailers are benefitting from “incredibly robust internet transactional data” before they arrive. Essentially, the prosperity of offshore retailers is linked to more granular knowledge about how Australians think, shop, spend and live.
“That to me, among other things, is actually a very good thing for our industry,” Schroder says.
Tapping into the consumer psyche also accounts for some of Stockland’s success in retail mix in shopping centres.
Guided by the non-cash dealings of Australian consumers (through a partnership with actuaries Quantium and NAB), Stockland has insight into the spending habits of Australians, and their demographics, Schroder says.
It’s a significant detail, given just how much the retail planning mix shifts over the years. Fifteen years ago, a shopping centre would boast four book stores, while today you may have one. The retail winners are changing, with certain sectors positively booming, according to Schroder.
“Services has increasingly taken a lot of share and a lot of space from retailers that hitherto were trading successfully in bricks and mortar, but now have a greater market share online,” he says.
However, Schroder concedes challenging conditions for the retail industry in the past few years.
“Some [store] rationalisation that, arguably, was overdue, has happened. And there could be more of that coming,” he says.
But he points to significant trends – besides services getting a tick, he says fresh food stores, like Harris Farm and Norton St Grocer, will do “super well”.
“The other thing that is burgeoning at a rate of knots is affordable restaurants and cafes. Huge.” Schroder calls it “affordable luxury”.
As for department stores, he says the leading stores are meeting the challenges head-on.
“They are taking the hard decisions, they are moving into a more defined clicks and bricks strategy and executing it, and the evidence is there. Where they have underperforming stores, they’re thinking about what that might mean,” he says.
Meanwhile, Schroder says Stockland pays attention to “what’s going on” in Asia, the US and the UK.
“Generally, for how we’re designing things and also to keep ahead of what the offshore retailers are doing in anticipation of them coming here.”
And Schroder says we haven’t seen the last of offshore entrants to Australian retail space.
“There’s more coming. Now I won’t name who, because that would be out of order, but there’s more coming. And it’s great for the industry.”
