Fistfuls of bags, bustling crowds, and shiny aisles full of things you don’t need. It’s an environment we’re all familiar with. But increasingly, it’s one a lot of us are trying to avoid.
The suburban shopping centre was once the epicentre of consumerism — a lively hub where you could spend the day catching up with friends while fulfilling all of your materialistic desires.
Indeed, before online shopping swept in and stole the show, shopping centres were the ultimate retail experience. Just decades ago, no one could conceive of buying something you hadn’t first held in your hands. And the maze-like design was an adventure, rather than a hassle.
When shopping centres were first brought to Australia, they completely revolutionised the retail game. Ken Myer, Frank Lowy and John Saunders introduced the concept of ‘malls’ to Australia back in the 1960s. They had seen the immense success this retail model had enjoyed in the US. And the results back home did not disappoint.
In Victoria, this concept was brought to life by Chadstone. While it initially had only 72 shops, this soon multiplied to over 500, eventually establishing Chadstone as ‘the fashion capital’ of Australia.
And in NSW, Westfield shopping centre quickly flourished as a popular franchise, and soon became the place to be for weekend goers.
But despite its initial booming success, the last decade has seen this once-loved retail model fall on hard times. The demand for in-store shopping is collapsing both in the US and at home. And the retail giants that most thought were unshakable are falling like dominos.
The latest to go is toymaker extraordinaire, Toys “R” Us.
The fall of Toys “R” Us
Every Australian has memories of the vibrantly colourful toy store. Whether it be running through the aisles as a child, or chasing after a child of your own. Toys ‘R’ Us was the benchmark for toy stores around the globe.
But this week the toy retailer announced that they will be selling or closing all of their 885 stores in the US, resulting in over 33,000 lost jobs.
The company had been trying to keep their head above water for some time now, battling with billions of dollars in debt and a shrinking consumer base. But as they were unable to come to a restructuring deal, they have been forced to shut up shop.
The company is also likely to liquidate the 45 stores currently operating in Australia, putting over 2700 Australians out of work. It is also in the process of closing stores in Canada, Britain, Asia and France.
Overall, it will be the biggest blow to the toy industry in decades. As online shopping becomes the new norm, the traditional toy store model will likely die out. And as consumers usually go online for a specific item, the traditional shopping experience of stumbling upon something unexpected will likely go too. As BMO Capital Markets analyst Gerrick Johnson confirmed,
‘At Toys “R” Us, there is a lot of browsing, impulse purchasing and idea generation…it’s going to be harder for new items to break out.’
Perhaps kids just aren’t interested in physical toys anymore. Like us, they know the online world provides content that is often more engaging and rewarding than anything you can find in the real world. And with myriad of video games and mobile applications available, it’s no surprise that the humble toy store couldn’t compete.
This is a trend we are seeing in retail across the board. Even the shopping strips in the heart of the CBD are slowly going out of fashion as consumers migrate to the digital realm.
For the last three years, year-on-year retail growth has declined, falling from 4% annual growth in 2015 to 1.7% today. It’s this harsh environment that has caused the demise of some of the biggest names in retail.
Pumpkin Patch, Darrell Lea, Topshop and Oroton Group have all crumbled under the pressure. Even brands like Myer, which was once the go-to department store for Australians is on the verge of defeat. Their share price has dropped from $1.33 to 54 cents in the last three years — a whopping 58% decline. The value of Myer has also dropped significantly, from $1 billion to $449 million.
This has all been a devastating blow to investors. Retail giants that once could have been considered stable blue-chip stocks have succumbed to volatility and outright failure. And it seems the retail market is no longer a safe or profitable bet for stakeholders.
That said, the stock market still holds pockets of massive potential. The smaller end of the market is home to companies that are aware of the ever-changing needs of consumers, and are innovating to accommodate.
According to Sam Volkering, small-cap stocks are where investors should look if they want to find companies that are prepared for the future. A characteristic that is essential if you want to be profitable in the long run.
He has written a detailed report on a few of these companies he has personally chosen, which you can access here.
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Until next week,
Editor, Markets & Money