The devil’s in the retail, warns Rufrano

A surge in stores being closed by some of the US’s biggest retailers is crystallising concerns about the future of retailing and the impact of behemoth Amazon and broader e-commerce, says Glenn Rufrano, the US property executive who led the turnaround of local corporate basket case Centro Properties. “In the first quarter of 2017, we had a significant difference in store closings from the first quarter of 2016. That started people thinking about what’s going on,” Mr Rufrano told The Australian. Mr Rufrano said that in the first quarter of last year retailers closed 850 stores, but in the first three months of 2017 this had doubled to 1600 stores. None of these retailers were in bankruptcy, he noted. “It was the big ones (department stores), Macy’s, Sears, and JC Penney … Macy’s announced 100 stores closing, Sears 150 and JC Penney 135, all in the first quarter,” he said. “The fact that more stores closed out of bankruptcy, and the big three department stores announced it, really started people thinking we have a retailing problem and clearly e-commerce must be part of it.” However, Mr Rufrano said this was against the backdrop of a strong stockmarket in the US, low interest rates, low unemployment of about 4.6 per cent and improved GDP growth. “We are a little schizophrenic: people feel good about the economy, and the economy does feel good. Employment is good, spending is good, but there is this fear factor where people still want to keep some safe investments and turn to the treasuries,” he said. “Both feelings are keeping volatility low.” Mr Rufrano said Australia had similarities with the US. While Amazon, which on Friday posted a 77 per cent fall in quarterly profit despite sales of $US38 billion, had been “full-blown” in the US for a long time, its impact had become more notable over the past year. Australia has also seen a raft of store closures, largely on the back of retailers failing, including the local franchise of Topshop. Meanwhile, Amazon’s purchase of US grocery retailer Whole Foods had rung alarm bells, Mr Rufrano said. “In my view, Amazon felt they could not get a significant position in the groceries market unless they had bricks and mortar. This is a case of the reverse, where e-commerce needed bricks and mortar to penetrate the market.” Mr Rufrano said while Amazon was ascendant, no group took 100 per cent of a market and some retailers would thrive. “Go back to 2000, Wal-Mart expanded in US with supercentres of 150,000sq ft, from 80,000sq ft, and put food in there. Analysts said in the next 10 years that Wal-Mart would dominate and there would be no other retailers,” Mr Rufrano said. “Wal-Mart has done very well, but they don’t own 100 per cent of the market, and the reason is that retailers don’t sit around and die. “As time goes on they learn to compete with the dominant company.” A number of retailers were doing very well in the US, particularly discount stores, said Mr Rufrano, whose VEREIT has about 40 per cent of its assets in retailing, mostly discount and necessity stores. Among the better performers were T.J. Maxx, which sells branded discount apparel, electronics retailer Best Buy, Home Depot and “dollar” stores. Well-run fitness centres had come into their own as drawcards for shopping centres, he said. “Getting people to shopping centres is the new wave,” Mr Rufrano said. Retailers needed to compete online, but the cost was high, with little margin, Mr Rufrano noted. “If you are a retailer in the US and have 40 or 30 per cent of your distribution online and part of that is charging for delivery and pick-up, you will get hurt by Amazon. “What happened in the US, was instead of fighting that trend they … distributed for free.”

Source: www.theaustralian.com