The Covid-19 disruption has closed some businesses while accelerating a contraction of store networks many chains had started before the pandemic forced trading restrictions and lockdowns.

Landlords face the immediate challenge of finding suitable replacement tenants for the vacant shopfronts but they also must focus on the threat to future sales growth posed by potentially lower foot-traffic and spending.

Retail chain results for the latest financial year indicate spectacular growth in online sales and, in many instances, a dip in the average sales per store.

Obviously, in-store retail sales will rebound with the end of lockdowns, more certainty about safety and privacy, and the easing of restrictions such as one person per household being allowed to shop at a time.

However, the extent to which in-store sales will recover, and the rate of future growth, are uncertain and will depend on clever and effective shopping centre marketing plus a full, vibrant, and contemporary tenant mix.

Recovery will also depend on the business models retailers adopt following Covid-19, specifically their degree of commitment to online sales versus bricks-and-mortar.

Retailers look online for growth

Online sales are no longer a nice little sideline for retailers, they are now a significant share of total sales and earnings, as well as an increasingly crucial interface with existing and potential customers.

Quite apart from the lockdowns and the risks of visiting virus exposure sites, the surge in online shopping in the past two years also reflects significant investment by retail chains in the look and function of their sales platforms and payment options.

These changes have made trust levels high for recognised retail brands’ product quality, pricing, and return or replacement of merchandise – helping to underpin the growth in online shopping.

Retailers expect to continue to grow online sales, even allowing for the reopening and unrestricted trading of bricks-and-mortar outlets; for example, Myer, the struggling department store chain, believes it can leverage its iconic brand to double online sales to around $1 billion.

Myer online sales increased by 28 per cent, to $540 million, in FY21, accounting for 20 per cent of total group sales. It took 59 Myer stores nationwide to generate $2 billion in the same 12 months.

Other leading retailers are adapting their business models to further develop their online platforms as well, with scale now improving profitability and opening up potential changes and cost-savings in the supply chain.

A tough road ahead

Highlighting the challenge this trend poses for shopping centres, an Australia Post report issued in August provided an indication of the shift in retail sales from storefronts to online platforms. 

Australia Post reported online sales for July 2021 were 78 per cent higher than in the equivalent month pre-pandemic, in 2019, even after the reopening of in-store trading in Victoria.

The report confirms that, while disruptions and delays in courier deliveries are taking a little of the shine off internet purchases, consumer confidence and enthusiasm for buying online has grown spectacularly as Covid-19 has kept stores closed.

Drawing on Australian Bureau of Statistics data, Australia Post reported that online sales claimed 16.3 per cent of total retail spending in the year to June 2021, after excluding cafes, restaurants and take-away food.

That 16.3 per cent represented $52.1 billion in online sales. In 2019, online sales accounted for 11.3 per cent of total retail sales.

Australia Post also reported retail expenditure online increased by 30.8 per cent, year on year, to June 2021, with the growth trend extending into the current financial year, as 5.6 million Australian households bought goods online in July.

The surge in online sales is not simply a Covid-19 phenomenon. It is reshaping retail and will redefine the relationship between landlords and retailers.

It has created a more complex and challenging outlook for shopping-centre owners that will require a much closer relationship with tenants to secure future growth by ensuring the in-centre and in-store experiences are more dynamic and engaging.