Soaring rents quicken online retail revolution
Fashion retailer Firefly has never had a traditional shopfront. Photo: Supplied
Firefly expanded its beach and resort fashions from Sydney market stalls in 2003 to an international sales operation without ever existing as a traditional bricks-and-mortar outlet.
The Surry Hills-based business sells its clothes through other retailers and directly online to customers and symbolises much of the wave of change sweeping through the industry.
While retailing billionaires Gerry Harvey and Solomon Lew recently unleased a storm of debate about unfair advantages for online outlets, for Firefly the lure of web-based trade is more about cheaper costs than lower tax.
"Rent is expensive," said business co-ordinator Cherisse Kofod. Being online and distributing to stores "is easier for us".
The statistics back up Ms Kofod's experience. Retail rents in Sydney were higher than in London, Tokyo and Hong Kong at about $1220 a square foot a year, and second only to New York, according to the latest survey by global commercial real estate firm CB Richard Ellis. Melbourne and other big Australian cities were not far behind.
"Global retailers do comment on how expensive Australia is as a place to establish and run a retail operation," said Kevin Stanley, Pacific research executive director at CB Richard Ellis. "Part of that view comes from the retail rents, which we know are high by global standards."
While some US retail stores particularly in the Big Apple pay hefty rents, they typically report a higher turnover than their Australian counterparts to compensate.
The total occupancy cost of a small Australian fashion retailer is between 17 and 25 per cent of gross sales, according to Sydney-based Leasing Information Services. Data from the Washington, DC-based non-profit Urban Land Institute show the equivalent occupancy cost for fashion retailers in the US is about 7.6 per cent.
While Ms Kofod says high staffing costs act as another deterrent for opening a conventional shop, others such as Melbourne-based boutique Swish reckon a mix of online and physical store presence is the way to compete.
Tyler Borg, Swish's marketing manager, says foot traffic to the company's four shops around inner Melbourne tends to be more fickle, fluctuating with the weather and overall consumer confidence.
The firm's online experience, though, is headed one way, with business volumes surging at a 50 per cent annual clip. Interestingly, some of the orders follow in-store visits.
"We get lots of people from interstate just coming into the stores … they'll pick up a card that's got our online information on it," Ms Borg said. Those customers later log on from home and shop remotely.
Sydney-based lighting design store owner Jenni Asbridge said she would move from a traditional rented shop at the end of the month to a smaller and less expensive trade showroom, cutting staff and focusing on building her online business Designer Lights.
The website for her store, which she started six years ago, now accounts for more than half her sales.
"What we have lost in foot traffic we have picked up online," Ms Asbridge said. "I think in the last five years it has been a matter of adapt or die."
Rachel Borg, of online retailer Style Society, said a traditional shop was out of the question.
"Our original idea was to open a physical retail outlet, but due to the extraordinary costs of rent (especially in a great location), fit-out etcetera, we decided that online was the most viable option for us," she said.
"It has so far proven to be a great move as we have had great feedback and success for the short time we have been trading."
Online rental costs
The recent online furore involving Mr Harvey and Mr Lew centred mostly around whether the government should lower its $1000 GST-free threshold for online purchases from overseas. So far, the federal government shows no inclination to add an extra burden on households facing higher costs, not least rising food, insurance and other prices related to the massive Queensland floods.
Some of Australia's biggest online retailers, meanwhile, are looking to grow with little or no physical retail presence.
Catchoftheday.com.au, for instance, fulfils orders through a warehouse in Moorabbin, in Melbourne's south-east, while DealsDirect.com.au's 40,000 square-metre warehouse is located in Ingleburn, NSW – far from Sydney's pricey downtown.
"We certainly have overheads but I would argue the online model in time will prove to be a more efficient model [than the tradition retailer]," said Paul Greenberg, chairman of Deals Direct. The online-only retailer recorded more than 2 million unique visitors to its site over the Christmas shopping season.
Paying industrial rent gives the company an edge in costs, said Mr Greenberg. Add to that the fact that shopping strip outlets can typically only trade during the day to cover rent and other costs. "Our shop never closes."
Although Mr Greenberg doubts traditional retailers will disappear under the pressure of the online model, a new business equation is certainly taking shape.
Firefly's Ms Kofod agrees, saying the company has had a "huge response" since it began selling on the web.
"Our customers are over the moon to have it online," she said. "Not only for our retailers to see what styles they can order but also for our customers who live in rural areas and who can [now] get our fashions, as well."