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Bigger market impact from opening or closures?

  • Opinion
  • August 3, 2016
  • Paul Keane
Bigger market impact from opening or closures?

David Jones opened last week on Lambton Quay in Wellington, and at the same time Countdown announced they were to close six supermarkets throughout New Zealand.

So which one had the bigger impact on the market?

David Jones opened in appalling weather but that did not seem to hamper customer interest. From all accounts the opening last Thursday was a great success and in the trading days since they’ve continued to pull the visitor numbers. Locals have had the opportunity to see a department store from off-shore open in New Zealand.

So did David Jones live up to expectations? It really depends on what those expectations were.

The traditional staircase was replaced with escalators but the merchandise was really not a lot different than what one could buy elsewhere and in some instances cheaper. The offering seems to be of upmarket value and this may take a while for locals in particular to relate to.

Certainly Wellington has an advantage in that the store’s trade area basically contains a large number of high-earning corporate and government employees. However, the store is of such a size that it may fail to really attract the number of high end customers that it would like. Other than the name, David Jones offers no more than a Ballantynes in Christchurch or a Smith & Caughey’s in Auckland.

The closure of the proposed six Countdown supermarkets was initially pursued with interest by the media and then quickly disappeared as a real news item.

The competition between the major supermarket operators in New Zealand - that is Progressive who own the Countdown and other lesser known brands, and Foodstuffs who own Pak’n Save and New World - compete fiercely for business. As I was explaining to one media outlet last week, supermarkets protect their respective patches with a fierce determination.

Closure of supermarkets is indeed uncommon.

There is a risk that a closure may mean a loss of market share in a particular community trade area. Both supermarket operators will want to ensure that the patch they abandon isn't going to be re-occupied by a similar operator in the future.

This is difficult to control, so the supermarkets to be closed by Countdown will be at the lower end of the performance factor. Rotorua and Napier are likely to be two of the areas that will see Countdown supermarkets close; there is no real benefit in having three supermarkets operating in Rotorua where population growth has been nil or negative over recent years.

However, this is not the only issue that the Countdown camp have to face.

It seems that Progressive owners' (Woolworths) purchase of Ezibuy was not the success that they expected; it now has the group on the market for sale. This may well be an opportunity for the Pepkor group out of South Africa who purchased the Postie Group last year.

So of the two announcements last week, the most influential on our market was by far the Countdown closure and Ezibuy sale.

Add to that the previous week’s closure of a Warehouse outlet in Wainuiomata, and the certainty of large store lease retention of is no longer certain. We will be watching this subject with interest over the coming weeks.

 Paul Keane is a registered property professional and has vast experience in New Zealand’s commercial property industries. He provides retail and property consultancy including development management to many New Zealand property owners, developers and city councils. This post originally appeared on RCG's blog.

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