Productivity Commission Inquiry 

The market for retail tenancy leases in Australia

Submission No.4

INTERNATIONAL RETAIL RENT COMPARIONS 

Are Australian Retailers at an International Competitive Disadvantage ?

Southern Sydney Retailers Association 

Contact : Craig Kelly 0413 433 288

Sept 2007

INTERNATIONAL RETAIL RENT COMPARIONS – 

Are Australian Retailers at an International Competitive Disadvantage ?

The Spending Power of the American Consumer.

The American consumer is one of the richest in the world with GDP per head  31% higher than compared to Australia. 
On the basics , Americans spend only 6.5% of their income on food compared to 10.5% spent by the average Australian. For alcohol, the average American spends just 1.5% of their income, while the average Australian spends 4.1%
Consumer spending in the USA is also not diverted to gambling and into the club industry like it is in Australia.
While it’s often said the American consumer is addicted to shopping, in contrast, the Australian consumer is addicted to gambling. Australia, with only 0.3% of the world’s population has 21% of the entire number of poker machines in the world. 
In 1999-2000 Australians lost $13.3 billion through gambling. This amounted to $931 for every man, women and child in the country. The figure for 2007, with Woolworths Ltd controlling more poker (slot) machines than Caesars Palace and the Bellagio Hotel & Casino combined - is likely to be substantially higher.
Given the above statistics, it is clear that the average American has a much higher disposable income to spend on clothing, footwear, furnishings, and household articles - all items typically purchased from the average shopping centre - than the average Australian does, which may help explain the greater demand for retail space in the USA.
Furthermore, with the colder climate across the majority of the USA, and more distinct seasons, Americans spend more on clothing per person that the average Australian. Further, the colder climate in the USA placing less emphasis on outdoors activities like there is in Australia, leading to a greater supply of indoor retail space. 
However, despite the greater supply of retail space in the USA, the spending power of the American consumer still comes through, as American department stores that anchor shopping centres, have a superior sales productivity than that of Australian department stores.
A report for the International Council of Shopping Centres, by Michael Baker dated 25th October 2004, states;  
According to SCORE United States mall anchors average $192psf. Australian department store anchors don’t do as well, at an anaemic $168psf. 
Discount department stores at Australian Malls do somewhat better than department stores, producing an average $220psf….Given the weakness of the Australian department stores, it is perhaps surprising that the discounters don’t do better. The inability of Australian discount stores to capitalize fully on the fragile competitiveness of their department store competitors runs very much counter to the US experience.
Therefore given the vastly greater spending power of Americans to purchase goods from Shopping Malls, and given the superior sales performance of American Department stores compared to Australian department stores - one would expect retail rents in American shopping malls to be substantially higher than retail rents in Australian malls, even given the greater quantity of retail space in the USA per capita.

USA v Australia - Shopping Mall Rents. 
Over the last few years, there has been anecdotal evidence and rumours of absurdly high retail rents in Australian malls compared to shopping Malls in the USA.

However, the Westfield group have been very helpful to confirm these rumours by publishing this data on page 11 in their 2005 annual report, for the world to see the massive differences in rents between Australia and the USA