Retail Sector Still Patchy

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RetailPatchy
IN RECENT TIMES, the entire retail sector has been hit on two fronts — with local traders having been challenged by both the highest-rated in dollar, and weakened global economic conditions.

Plus, you’ve also seen a structural shift in how modern consumers are choosing to engage in the market — with the continued growth of online consumer purchases.

The effect of Global uncertainty

Global economic weakness and financial uncertainty have been hurting discretionary spending, as consumers also adopted a more defensive attitude. As such, they have substantially increased savings to buffer against high debt levels and declining consumer sentiment.

Consequently, household savings (as a percentage of disposable income) have remained elevated since the 1990s. While consumer sentiment still remains somewhat subdued, with many households continuing to de-leverage.

Despite all of this, retail sales growth has stabilised and improved marginally through 2012. And has shown some improvement during the early part of this year.

Nonetheless, retail rentals have been in decline. At the same time, larger retail outlets have looked to revitalise their stores as a point of difference, to help attract more consumers.

Homewares likely to move first

With the continued improvement in the housing market, the Bulky Goods sector will probably drive new development. Whilst neighbourhood and local centres have been able to hold their own, due to less reliance on discretionary spending.

In the short term: Retailing will depend upon consumer sentiment and the stability of the global economy — with the labour market and international economic conditions the key to making sentiment more favourable for retailers.

With a possible increase in unemployment (albeit marginal), and softening conditions within China, there is likely to be some continued headwinds hitting the sector.

In the long run: Online retailing remains as the prominent challenge. The segment continues to grow with strength (up nearly 25%, by the end of 2012). But overall, it is still only equivalent to around 5.5% of traditional retail turnover.

Online retailing has significant potential to grow. As technology improves and demographics shift to a more tech-savvy customer … bricks and mortar retailing will clearly need to find the ways and means to adapt.

Bottom Line: As a Commercial property investor, you need to remain wary.

Without having rather extensive experience with Retail property, you’ll find it hard to pick the next upward trend with any certainty.

Morton

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