ANALYSIS: About 110 shops in central Perth sit empty after challenging years in retail, but some in the sector believe now is the time to make their move.
THERE are rarely any winners when a small retailer or cafe hits the wall.
Behind an empty shopfront will usually be owners under stress, suppliers waiting for cash, workers going unpaid, and a landlord losing a revenue stream.
In Perth’s CBD, three big trends have converged to clobber traders: online shopping, a post-boom economic slowdown and, this year, the COVID-19 pandemic.
All have affected retail demand.
Lengthy demand-side pain traditionally necessitates supply-side readjustment, through a drop in rental prices, economic reform or other cost-cutting measures.
In the worst-case scenario, a business will close.
Empty shops are the most obvious indication that process is under way.
Photos: David Henry
A recent walk-through of Perth city precincts found about 114 shopfronts in the Hay Street and Murray Street malls, and their adjoining arcades, were shuttered (see graphic), a number broadly confirmed by an industry source.
Yagan Square has about 40 per cent of its spaces unfilled, while four blocks surveyed along William Street in Northbridge had 13 spaces available out of 90.
The estimates include spaces owners have boarded up or filled with installations, but not those with peppercorn leases
While some businesses have closed, others have moved to previously vacant tenancies, or focused operations outside the city.
For broader context, 2,161 businesses in the 6000 postcode applied for JobKeeper in August, the most recent Australian Bureau of Statistics numbers show.
But the pressure on Perth traders was building long before COVID-19.
State-wide, retail spending was $34.8 billion in the year to February, up just 5.8 per cent from the corresponding period five years prior.
That’s barely more than Perth’s 5.2 per cent inflation over the period.
Photo: David Henry
Illustrating the stagnation, about 129,200 Western Australians worked in the retail industry in February 2020, compared to 128,000 in February 2015, according to the bureau.
However, those numbers are not seasonally adjusted, and varied wildly through the period.
Horrifying
Perhaps nowhere has the city’s harsh retail and hospitality environment been more evident than Yagan Square, which opened in 2018.
Ten businesses have exited the precinct so far, with seven of those leaving during the COVID-19 period, according to Development WA.
“It was extremely stressful,” the owner of a business that previously traded in Yagan Square told Business News, on condition of anonymity.
“We have a young family, it put immense pressure on us.
“We never took a dollar out of it; the rent was so high.
“The killer at Yagan Square was the variable outgoings; they were huge, they were almost equal to the rent.”
But the frustrations were more than just financial, and included lower-than-expected foot traffic, communication issues with management, bans on advertising, and slow reactions to maintenance issues.
Business News understands initial foot traffic projections relied on Yagan Square connecting to the Perth train station to bring commuters directly through the food hall.
The projections were too high, the owner said.
“It was and still is the place of promises, and nothing ever got delivered,” the business owner said.
“The place was just very poorly run.”
Photo: David Henry
Most of the businesses that had operated in the precinct had track records in hospitality, the tenant said, which they considered evidence the challenge was systemic.
An example was Big El’s X The Wknd, which Business News revealed in May 2019 had entered liquidation.
Big El’s had operated on Francis Street in Northbridge, before moving into Yagan Square.
Multiple businesspeople who have operated at the food hall have highlighted bans on exterior signage as a frustration.
They claimed A-frames and leaflets were not allowed, while tenants said customers had often been unaware the food hall itself existed.
Another former tenant had similar frustrations, which they said arose before COVID-19.
“They [management] couldn’t get their act in place [for the length of the tenancy],” the business owner said.
“You would realise your mistake sooner or later, but with them it hasn’t happened.
“It was a horrifying experience.”
DevelopmentWA chief executive Frank Marra said Yagan Square was a high-profile precinct and had received international accolades but had been unable to escape the impact of the pandemic.
He said City of Perth bylaws did not allow for A-frame advertising boards, but promotions had been conducted through the digital tower and social media.
Activations and marketing initiatives were in development, Mr Marra said.
He said tenants had been allowed to activate surrender-of-lease clauses because of COVID-19, with five having taken up this opportunity.
Broader issue
There have been challenges beyond Yagan Square.
HLB Mann Judd Insolvency WA principal Kim Wallman, who worked on the Big El’s liquidation, said the firm had no recent appointments in city retailing, likely due to temporary director protections and the JobKeeper package in response to COVID-19.
Nonetheless, an example of the tough retailing market before COVID-19 was HLB’s February appointment to administer retailer Mainpeak, which had a store at the western end of Murray Street.
HLB director Greg Quin, who was recently registered as a liquidation practitioner, said Mainpeak had been late to online retailing, and competitors had a strong presence.
More broadly, Mr Wallman said retailers had been under pressure before the pandemic.
“Back in January, February, the confidence wasn’t there pre-COVID,” he said.
“It was fragile then and it fell off a cliff in March.”
At Carillon Arcade, Business News spoke to four retailers who had exited, or moved positions in the arcade, whose old tenancies remained unfilled, even after periods of more than 18 months.
A big factor at Carillon has been a potential redevelopment by owner Dexus Wholesale Property Fund.
Tenants told Business News they felt uncertain under short-term leases, as Dexus considered its development options.
“Carillon City is a potential future development with master planning well advanced and will require vacant possession to proceed,” a Dexus spokesperson said.
“Therefore, vacancies are at an elevated level at present.”
There are complexities for the $200 million proposal, which received development approval last year.
One is the need to connect tunnels between St Georges Terrace and Wellington Street to enable movement of construction equipment.
Spring spark?
Photo: David Henry
An 11.7 per cent jump in household spending in WA in the September quarter offers some promise of recovery.
Retail spending, which hit record highs as WA emerged from lockdown, had its third strongest month ever in October.
But it has become something of a cliche since the boom began to fade to say there are green shoots in Perth’s CBD.
NAB chief economist Alan Olster said there had been structural changes in retail spending nationally, particularly during COVID-19, towards online options and suburban shops.
National online spending grew 60 per cent this year, Mr Olster said.
“I think there’s been a structural change, people had no option but to use it [online] for a while, they’ll keep going,” he said.
“What we worry more about is the number of people in CBDs; general retail in CBDs is oversupplied.”
That reflected the move towards working from home.
While many tenancies remain empty, there will be downward pressure on rents, or owners will find alternative uses for the space.
Excess capacity in city retailing would not go away any time soon, Mr Olster said, with rents to continue their fall.
“We did a third quarter commercial property survey [nationally] and it was diabolical,” Mr Olster told Business News.
While he said industrial property was in a decent position, confidence for retail property investment was low.
People power
However, Mr Olster said a recent survey of business conditions in
WA showed the state was “shooting the lights out”, citing strong retail spending data as a positive sign.
Growing patronage was essential for this trend to gain traction, however.
Chamber of Commerce and Industry of WA chief executive Chris Rodwell said foot traffic in Perth had been 20 per cent below pre-pandemic levels in recent months, and the city had the highest office vacancy rate in the country, at 18.4 per cent.
Y Research principal Damian Stone said hospitality venues such as restaurants, bars and cafes were a big part of retailing in Perth’s CBD, and were reliant on foot traffic.
“It’s pretty dire stuff,” Mr Stone told Business News.
Retail rents were stickier than those for office space, with Mr Stone saying they were usually held by smaller entities that could not offer big incentives.
Discounting also varied depending on market segment.
But both Mr Rodwell and Mr Stone had solutions.
“The best cities in the world are engine rooms of entrepreneurship, creativity and wealth creation,” Mr Rodwell said.
Payroll tax reductions would support smaller businesses, he said, as would the abolition of stamp duty.
“Replacing stamp duty with other broad-based taxes would enable higher property turnover and facilitate the evolution of the CBD, whether with more international student accommodation or more dynamic, inviting spaces like Yagan Square and Elizabeth Quay,” Mr Rodwell told Business News.
“We should ease WA’s pre-internet era shopping restrictions to help retailers compete with the shift to online shopping.
“Productivity Commission and University of Western Australia studies show freer shopping hours boosted job opportunities for young people, encouraged greater foot traffic, and boosted retail turnover.
“All of that would mean more patronage, greater vibrancy and better safety in Perth.”
Mr Stone cautioned that many small businesses had recently cut opening hours to control costs in a tough market.
Generally, he said, the city needed to establish a key point of difference with suburban shopping centres.
An example would be tailgating parties at Forrest Place on AFL game days, where punters stopped off on the journey to Perth Stadium.
Activate Perth chief executive Kylie Taylor advocated a similar theme of creating experiences in retail.
She said Perth’s retail scene needed to be as unique as the hospitality market.
Making moves
Babel Mahdi, who owns the Grab N Go Deli chain, is among those bucking the trend of closures.
The business is setting up two new delis on William Street in Northbridge, in addition to two existing outlets on that street.
Mr Mahdi said he wanted to secure a strong presence in the area.
“Ever since COVID-19 stopped in Perth, there has been a boom in Northbridge,” he said.
More people had returned to the entertainment district than the city, Mr Mahdi said.
While the CBD had more offices, many people were still working from home, he said, while Northbridge was particularly busy on weekends.
On the corner of James Street and William Street, Changjiang Currency Exchange has opened in recent weeks.
One block north is new bar Neon Palms, in a space previously inhabited by Panama Social.
Co-owner Hayden Carter told Business News the opportunity to buy the venue had come at the right time, after he’d considered running his own operation in Perth for a couple of years.
Mr Carter said small bars had enjoyed strong patronage in the months since the lockdown ended, because customers could not go overseas.
Those travel restrictions helped inspire the theme.
“Part of what we wanted to create [was] a space that felt like you weren’t in Perth anymore,” he said.
“It meant people could go somewhere that felt like they were on holiday.”
That meant fun, bright colours and high-end, low-sugar cocktails with a Miami vibe.
Neon Palms opened on October 30.
“It’s been really good ... better than we were asking for,” Mr Carter said, noting that weekday trade was starting to pick up.
Mr Carter acknowledged there had been a broader downturn in the past three or four years, however.
Some venues had done well nonetheless, he said, particularly those that maintained a respectful atmosphere and provided a safe space for all patrons.
The theme of providing a different experience extends to shops, with Africa-themed fashion outlet Repkulture and Europe-inspired Khirzad Femme two examples.
Repkulture has taken a temporary space through Activate Perth in Plaza Arcade and has been operating about two months.
Photo: Matt Mckenzie
Director Yandi Chali (photo) told Business News the retailer, which was set up by her mother and had been operating less than four years, produced contemporary cultural clothing.
Ms Chali said she hoped to allow people from Perth’s African community to express themselves through clothing and introduce the style to the broader market.
“It’s a very big step, putting ourselves in a place to see how our brand would work among other stores,” she said.
“We took a leap.
“We had a lot of people contacting [us] about the brand, to try the clothes on, but they’d be trying them on in our living room.”
Ms Chali said although the retail market was not as strong as a few years ago, it was improving in recent times.
Activate Perth’s Kylie Taylor said Repkulture was a good example of how the organisation hoped to bring life into the city, with experiential businesses in retail.
Ms Taylor said the outlet offered additional services beyond clothing, such as music, DJs and hair braiding, which she said was very popular.
In the King Street precinct, menswear designer Nilofar Khirzad has opened a pop-up shop focused on women’s clothing, Khirzad Femme.
“Why not now?” Ms Khirzad said.
“It’s a perfect opportunity.”
She said fashion retailing lost its essence in a shopping centre, and King Street offered an experience for customers.
“Fashion is about escaping,” Ms Khirzard said.
“Australians, Perth people, love to travel.
“Every June, July, August we’re in an exotic destination.
“People buy [designer clothing] when travelling.”
King Street was like stepping into the old world with European style, she said.
Another retailer, Camera Electronic, has opened Wanderlust, in Hay Street mall, also with a travel theme.
Declaration: Matt Mckenzie is a member of the UCIC Finance Committee, the owner of Trinity Arcade.
