An acceleration of international brand entries has driven rents up in the CBD, asset enhancements in regional shopping centres and activated new retail precincts.
From the international brands’ perspective, a number of factors are driving interest in the country:
- High population growth. New Zealand’s population growth has run at twice the global average for developed nations in the past decade.
- High consumption growth. New Zealand consumption per capita grew at twice the rate of the US over the last decade. The immigration boom in New Zealand is not only leading to faster population growth but, with the influx of Asian migrants to Auckland, an increasingly attractive demographic in terms of consumption patterns for international brands.
- Tourism, particularly from China. Chinese tourist arrivals have quadrupled in New Zealand over the last decade. The increase in Chinese tourist number has been especially strong recently and during the past two years, Chinese tourism expenditure increased from $770m to $1.75 billion in New Zealand. Chinese tourists spend about 30 percent of their total purchases on products to take home versus six percent for visitors from more traditional markets such as the UK.
- Low current international brand penetration rates. New Zealand’s international retail brand penetration rate is 16 percent. This compares to 28 percent for Australia, but even Australia pales in comparison to Asia. International brand penetration is 45 percent to 55 percent in leading Asian markets, but even secondary Asian markets enjoy penetration rates of 35 percent to 40 percent.
The above factors are backed up by the experience of some of the recent brand entries into the region. Sales productivity of some international brands in their Australian and New Zealand stores is among the highest in the world and coupled with low international brand penetration rates, makes this region highly attractive. Auckland CBD has already seen an influx of a number of luxury brands such as Prada and Gucci, and more recently Tiffany’s. Amongst non-luxury brands, H&M and Zara captured the most attention, but they are just two of a number of recent brand entries across diverse retail categories, such as Ben & Jerry’s, Adairs and Petstock.
In light of this experience and the multitude of factors driving international brand expansion, the current surge of new brands opening in the country is set to continue. CBRE tracks a universe of approximately 450 international retailers globally and actively monitors and engages them, which provides the basis for our insights.
Based on this analysis, potentially more than 50 international retailers could enter New Zealand over the next few years. Increasingly, these international retailers are targeting cities in order: Sydney, Melbourne and Auckland first, followed by Brisbane, Wellington and Perth.
Mid-range fashion and specialist clothing brands are expected to show a rising contribution to brand entry. With the opening of Zara and H&M in Sylvia Park, we see the expansion likely to continue to other locations. Being large-space users of 2000 to 4000 square metres, this is likely to see displacement of other retailers as was seen in Sylvia Park. Displaced domestic retailers are likely to seek secondary centres, which will have a positive impact on centres that have had a lack of retail demand.
Overall, we believe international brand entry is good for consumers through lower prices and access to more products and services. Property owners also benefit from demand from international brands, keeping vacancy rates low and supporting rent growth. Property owners may need to build relationships with international retailers and be willing to invest in asset enhancements activities to existing assets in order to attract international brands who typically require more quality space. There is also a need to provide a retail experience for consumers, particularly younger demographics who prefer more retail-tainment, international brands and food and beverage.
While Australian domestic retailers have faced tough competition from international brands, New Zealand domestic retailers have so far had a more positive experience. This reflects the relative strength of New Zealand’s economy since 2012 and, more importantly, the lower online and international penetration rate in New Zealand, which has provided a more insular retailing environment to date compared to Australia. This will likely change in the coming years.
This story originally appeared in NZ Retail magazine issue 747 December 2016 / January 2017