🏗️ Australian Retail Crisis: Why Bricks & Mortar is Shrinking and Shopping Centres Must Adapt
Has the worm turned? The landscape of Australian retail is undergoing a fundamental and rapid shift—a fiery cocktail of intense online competition, fickle consumer sentiment, and erosion of customer loyalty.
This period signals the end of the high tide known as traditional brick-and-mortar retailing. This analysis connects observations across retail strategy, property trends, and consumer psychology, revealing why the physical retail world is shrinking and what steps must be taken to survive.
The Strategic Retreat of Shopping Centre Landlords
Major external signals confirm this shift. Leaders of Australia’s largest shopping centre groups are grappling with the most significant change in their tenant mix and property purpose in history.
1. The Shift from Retail to Residential
Instead of focusing on expanding leasable retail space, major landlords are strategically pivoting to developing residential apartments on land surrounding their centres. This move is a major external signal that traditional retail growth has stalled, forcing owners to rely on the traditional wealth generation of real estate rather than expanding the retail footprint.
2. Amazon-Proofing via Experiential Retail
Centres are pushing hard to include more "unique experiences"—services, food, and high-end destinations that cannot be easily bought online. This Amazon-proofing focuses on creating cutting-edge experiences and hotel concepts (like those seen at complexes like Chadstone). The biggest losers in this pivotal shift are small and medium facilities lacking the capital to transform into diverse, exciting destinations.
The Department Store Crisis: Scaling Back to Survive
The iconic Australian department store model (Myer, David Jones, Target, Big W) is in severe distress. Their struggles stem from being locked into expensive, long-term leases while online retailers burn them up with better value.
The Necessity of Drastic Surgery
Industry veterans have bluntly stated that department stores must take a hit and scale back to the correct size. This involves drastic surgery, including shutting down 30%–40% of smaller, underperforming stores and operating with a concentrated number of flagship stores. The old trick used by landlords—relying on a Myer or DJs tenant as a drawcard to justify higher rents to surrounding businesses—no longer works as these anchors show signs of weakness.
The Lease Renegotiation War
Closing marginal stores is not simple due to long-term leases (some up to 20 years). Retailers are now employing highly combative tactics, such as calling in top liquidators (like KordaMentha), to assist in forcing lease renegotiations with shopping centres over the disparity between lease rates and special incentives offered to international fashion labels.
The Illusion of "Mock" Retail
The rise of apartments near inner-city retail strips often leads to the inclusion of basic "mock" retail/service offerings on the ground floor—concessions made to pass highly questionable council planning approvals.
These spaces often only spring to life temporarily from amazing developer incentives (like free rent) during apartment sales. Once the incentive finishes, it becomes a sorry story of struggle and retail wasteland (as demonstrated by areas like Melbourne's Docklands), further fueling the negative sentiment around physical retail investment.
The Future Landscape: Online Titans and Shifting Loyalty
When high-profile anchor retailers are removed, the primary drawcard becomes the supermarket. Even these grocery matriarchs are themselves being disrupted by delivery offers (Uber Eats, Menulog) that slice into their business by tapping into time-poor families.
This acceleration will only lead to one outcome: the continued shift of focus into the influential marketplaces of Amazon, eBay, Google, and Facebook.
Key Takeaways for Future Retailers:
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Amazon is the Likely Winner: The retail gaps are closing aggressively each quarter.
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Logistics Pressure: This shift will place incredible pressure on logistics and distribution.
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Loyalty is Earned: Consumer loyalty is no longer awarded for longevity, legacy, or perceived convenience. It is now a function of consistency of performance and true value. Niche online players who deliver on these points will continue to grow at traditional retail's expense.
🏬 Australian Department Store Rationalisation (2018–2025)
The major players have pursued various strategies, confirming the shift from volume and footprint to profitability and optimisation.
Myer
Myer continues to actively rationalise its store footprint, focusing on profitability and managing expensive lease commitments.
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Store Closures: Myer has closed several major, long-standing stores, including the high-profile Brisbane City (CBD) and Frankston (Victoria) stores in 2023. These closures have impacted the company's total sales figures but reflect a strategic move to exit underperforming locations.
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Strategic Focus: The company is acutely focused on optimising operational performance, tightly managing costs, and leveraging its MYER one loyalty program. Online sales continue to grow significantly, representing a larger percentage of total revenue.
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Brand Divestment: Myer has initiated the sell-off process for several owned fashion brands (e.g., Sass & Bide, Marcs, and David Lawrence). This aligns with the strategy of scaling back and focusing on core operations rather than managing struggling in-house labels.
David Jones
David Jones (owned by South Africa's Woolworths Holding Group) has also pursued store closures and floor-space reduction, continuing its multi-year strategy to return to profitability. While it has invested heavily in experiential retail, particularly in its premium food offerings, the overall market pressure remains intense. The move to reduce floor space in some locations is consistent with the need to cut expensive lease overheads.
Discount Department Stores (Target and Big W)
The discount sector has also been subject to rationalisation and strategic review:
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Big W: Owned by Woolworths Group, Big W has faced pressure, reporting continued challenges and a focus on cost reduction to return to profit growth. The strategy involves becoming a lower-cost business and simplifying operations rather than aggressive store expansion.
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Target: Target, part of the Wesfarmers Group, has been aggressively reducing its footprint, with dozens of stores either closed entirely or converted into Kmart stores since the initial planning phase began. This confirms the trend of consolidating operations around the most successful discount retail models (Kmart and Bunnings).
📉 Broader Retail Collapse and Insolvency
The challenge facing department stores is mirrored across the broader retail sector, which confirms the difficulty small-to-medium retailers face in expensive shopping centre spaces.
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Increased Business Failures: The Australian retail sector, particularly discretionary spending categories, has seen a significant increase in business insolvencies since 2023, driven by inflation, rising interest rates, and soaring input costs (like rent and energy).
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Major Chain Closures: Major closures have occurred, particularly in the apparel space. For example, the collapse of Mosaic Brands Group (owners of Rivers, Katies, Rockmans, etc.) has resulted in the closure of hundreds of stores across Australia, underscoring the severe market pressures on middle-market fashion retailers.
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Omnichannel Demand: The need to provide a seamless omnichannel experience with consistent pricing and real-time inventory updates has become non-negotiable, further punishing retailers tied to rigid, expensive, and inflexible traditional lease structures.
The key conclusion from your original analysis remains highly relevant: The market is aggressively rationalising, forcing a flight from expensive, underperforming physical space toward streamlined operations, optimised logistics, and a heavy reliance on digital channels and loyalty programs.
More an more people are are choosing to buy coffee beans online too. Retailers need to evolve if they want to survive as brick and mortar stores, especially the small business owners.
