Michael Baker
Principal, Baker Consulting

Understanding the reasons for the interest of so many global retail chains in Australia is key to understanding whether the trend is likely to continue and also the likely constraints on their growth in the Australian market. This analysis can be parlayed into some reasonable predictions regarding their potential market shares and effects on incumbent retailers.

Drivers of globalisation

There are four key reasons for retailer globalisation:

Saturation by American and European chains of their domestic markets. Many retailers on both continents have expanded to saturation point and, in some cases, are engaged in a long-term process of eliminating underperforming stores in their domestic portfolios. They have shifted from a strategy of expansion, duplication and cannibalisation to rightsizing and productivity improvement of their domestic store fleets.
Growth prospects in emerging markets, especially in Asia, Latin America and the Middle East. The compelling demographic stories of emerging markets are counterweights to weak growth prospects at home. Retailers are behaving in the same manner as many stock market investors by holding a diversified asset portfolio. Operating store fleets in both developed and emerging markets reduces their dependency on a single region, allowing them to benefit from a strong upswing in one market while another is experiencing a downturn.
Increased brand exposure and market-testing through
The risk of international store expansion has been reduced by the internet. Retailers are using e-commerce capability as much for market research as for direct sales. An example is American fashion home-furnishings retailer Williams-Sonoma, which established a four-brand unit in Sydney after outstanding success with e-commerce. The retailer was able to determine Sydney as a sweet spot geographically and also edit its specific assortment based on e-commerce testing.
Emergence of credible franchisees. Expansion by international retailers is often through franchising or some other form of licensing arrangement, as in the case of Gap in Australia. The parent retailer can transfer the real estate risk to a competent third party while establishing a brand presence. After a time the parent often buys back the license and takes over.

Of the top 25 global apparel retailers, 10 could be operating in the Australian market by the end of 2018 compared with six today.

Australia – incentives and deterrents for international retailers

While the previously-mentioned four factors provide a general explanation for the ‘why now?’ of globalisation, there are a set of pull factors that relate specifically to Australia, namely:

There are also some key deterrents:

I believe enough retailers will keep coming that within the next five years newly established international non-food retailers targeting the Australian mass market can achieve sales of approximately $1.5 billion (in today’s dollars) and account for more than six per cent of the Australian fashion market.

About the Author

Michael Baker is a principal of Baker Consulting, a retail and retail property economics advisory firm based in Sydney and serving clients worldwide. Michael is a former director of research at the International Council of Shopping Centres (ICSC ) in New York and, currently, serves as vice-chair of ICSC's Asia-Pacific Research Council. He writes a weekly retail column for a major national newspaper and is a frequent speaker on adaptation by the shopping centre industry to global change.

Article sourced from AMP Capital Shopping Centre's Recommended Retail Practice Report: "The New Consumer Paradigm - Embracing the evolving retail landscape".

About AMP Capital Shopping Centres

AMP Capital Shopping Centres combines world-class experience and specialist capabilities with a deep understanding of local property markets. Supported by the strength of AMP Capital and the experience of the AMP Group, we are uniquely positioned to provide premium property management services to some of Australia and New Zealand’s most successful and high-performing retail centres. Established in 1971, AMP Capital Shopping Centres has a portfolio comprising of 28 centres throughout Australia and New Zealand, which generate over A$7 billion in annual sales and attract over 165 million visitations annually. AMP Capital Shopping Centres employs over 275 people and has over 3,500 individual retailer relationships*.

*As at September 2013. Includes internally and externally managed centres.

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