Executive Summary
● Independent retailers in Fremantle are currently pessimistic about trading conditions but optimistic that conditions will improve in the next three months;
● Fremantle fashion retailers are more optimistic than businesses in other sectors, despite ABS data showing current seasonally adjusted sales are currently below 2009 levels;
● Very few retailers are planning on expanding their business or employing more people;
● Rent increases, during the current downturn, are causing financial stress;
● Most retailers believe more can be done to improve business conditions in Fremantle.
Introduction
Beausant Business Management has recently conducted a survey of independent retailers within the Fremantle shopping area to determine their views as to current market conditions and their confidence in the future.
Whilst retailers generally are pessimistic about current conditions, they are hopeful that the coming warmer weather will improve sales in the next three months. This is particularly so for clothing retailers, despite recent Australian Bureau of Statistics data suggesting lower spending levels.
Survey Sample
Between August 9 and August 17 this year, 56 retailers were approached to participate in a survey of business conditions in Fremantle, with 38 respondents (68% response). The businesses approached were located in and around the High Street Mall, on High Street itself and along the 'cappuccino strip' on South Terrace.
The retailers approached were independent, specialty businesses; retail chains were not approached.
A broad mix of retailers were approached, however the respondents had a bias towards fashion retail (58% of respondents). This bias reflects both the number of businesses in fashion within the retail precinct and the greater willingness of these retailers to respond to the survey.
Respondents were asked questions regarding their thoughts on current business conditions; whether conditions would improve over the next three months and whether they intended to expand their business, employ more people, spend more than $5,000 on plant and equipment or close, sell or relocate the business in the next 3 months.
Survey Results
Respondents rated current business conditions on a scale of 1 to 7, with 1 representing buoyant conditions and 7 representing depressed conditions. The average score of the respondents was 4.63, representing a general pessimism regarding current business conditions. Fashion retailers, representing men's and women's clothing and footwear, scored 4.64.
Respondents also rated the likelihood that conditions would improve over the next three months, with 1 representing a strong likelihood and 7 representing no likelihood whatsoever. The average score for all respondents was 3.97 and for fashion retailers 3.73.
Businesses also rated the likelihood that their sales in the next three months would be higher than the last three months, with 1 representing a strong likelihood and 7 representing no likelihood whatsoever. The average score for all respondents was 3.13 and for fashion retailers 2.91.
Seventy nine percent of businesses indicated they did not intent to expand their businesses in the next three months. While sixty three percent said they did not intend to employ more people; 69% said they did not intend to spend more than $5,000 on plant and equipment (not stock) for their business; and 13% indicated they would or might sell, close or re-locate their business in the next three months.
Analysis
Whilst most retailers were pessimistic about current conditions (average score 4.63), most thought conditions would be likely to improve somewhat (average score 3.97) in the next three months. The principal reason for this expectation was warmer weather and the end of the election.
Most retailers also thought it very likely their sales would increase in the next three months (average score 3.13, principally due to the increased retail activity with warmer weather.
The degree of pessimism across all retailers was higher than expected given recent retails sales data for Western Australia showing sales stabilising in 2010 after moderate growth through the Global Financial Crisis.
Graph 1: WA Retail Sales 2006 - 2010 ($M's)
It was also interesting to note that fashion retailers, whilst as pessimistic as all retailers (average score 4.64 versus 4.63 for all respondents), were far more optimistic about an improvement in conditions than all respondents (average score 3.73, versus 3.97) and more optimistic that sales would be higher (average score 2.91 versus 3.13).
Trading conditions in Fremantle for fashion retailers were said to be difficult, consistent with the results of this sector for Western Australia as a whole. Based on seasonally adjusted ABS data, clothing sales peaked in October 2007 and have fallen 29% since.
Graph 2: WA Clothing Sales 2006-2010
Graph 3: WA Footwear & Other Accessories 2006-2010
In a previous report (Retail Sales - A Fremantle Perspective), Beausant highlighted that recent sales in clothing and footwear were 13.1% and 12.7% lower than same time last year, on a seasonally adjusted basis. When this was raised with retailers, many commented that their sales were down more than that.
Very few retailers were planning on expanding their business or employing new staff. Whilst the figures for employment were generally better than for the other factors surveyed, they reflect the fact that most were planning on employing more temporary employees over the busy summer months only; very few were planning on adding full time employees.
Few retailers were planning to invest in their business, with many saying the current business conditions did not justify any investment.
A higher than expected percentage of retailers were considering closing, selling or re-locating their business (13%). The main reasons for these decisions were poor trading conditions relative to recent years and increasing rents.
It is likely that the survey does not properly account for the sentiment of cafe and restaurant owners. As can be seen below, this sector has been very buoyant of late. However, most owners could either not be reached or did not want to participate in the survey.
Graph 4: WA Cafe & Restaurant Sales 2006-2010 ($M's)
Analysis
The pessimism amongst Fremantle retailers reflects tough business conditions and is consistent with national trends according to the Australian Chamber of Commerce and Industry (Australian Financial Review "AFR", 18 August,2010). Discounting is widely reported (AFR, 4 August, 2010).
However, their optimism in the next three months is contrary to national surveys.
Many retailers feel Fremantle is 'losing its way' in a retail sense, struggling to compete with the larger shopping malls and the pricing power of retail chains. Many also feel there is a slow deterioration in the look and feel of Fremantle; in the words of one retailer: "it looks old and tired, a bit like me!"
Yet, despite poor trading conditions and this perception of a slow deterioration in Fremantle's look, many retailers reported significant increases in their rents.
It is in the interests of all stakeholders in Fremantle to have a vibrant retail sector.
Whilst most retailers recognise there are limits to what can be done to improve business conditions in Fremantle, many believe more can be done to improve the situation.
Working together cooperatively, with a view to the longer term sustainability of the Fremantle retail sector, seems imperative. A strategic drift downward is not in the long term interests of any stakeholders.
Sustainability is critical. For example, high rent levels that reduce business viability will see businesses close or leave, reducing the attractiveness of the Fremantle centre to visitors, further reducing business and creating a downward spiral. Eventually, this will be reflected in lower rents and higher vacancies.
Conclusion
At first glance, given the strength in recent ABS sales data for Western Australia, it was surprising to see the level of pessimism amongst independent retailers in Fremantle. A closer look at the ABS data, however, reveals significant divergence in the fortunes of different retail sectors; cafes and restaurant sales are increasing significantly, whereas fashion (clothing and footwear) are declining.
This survey may be under-representing the views of the cafe and restaurant sector, which may have a more optimistic outlook.
Tough economic conditions highlight structural issues that buoyant conditions can disguise or allow to be ignored. It is time for Fremantle to try and address these issues, building a stronger foundation for a sustainable future.
← Back to Articles
