Zara launches in Melbourne, but flow-on effects to surrounding retailers may be limited

Zara’s second Australian store is set to open in Melbourne this morning, ending months of speculation and anticipation for eager fans who are lining up in droves to attend the first showing of the boutique fashion retailers’ newest location.

However, some retail experts say the launch isn’t necessarily as high-profile as other stores that attract a more wealthy demographic, such as Apple, and may not result in as much extra foot traffic due to the overall weak retail environment.

The launch comes just two months after Zara’s first Sydney store launched in April, but the anticipation is just as high – over 100 people lined up early this morning for the 9am opening, with many waiting overnight.

Sales are expected to soar, with reports suggesting the Sydney opening saw the majority of stock gone within 24 hours.

Zara has certainly spent top dollar in attracting Melbourne customers. The new store is located in Bourke Street Mall – right next to David Jones’ flagship store – and at 1,700 square metres is 300 square metres larger than Sydney’s store.

However, while the entrance of such a high-profile retailer may prompt some analysts to predict higher rents for shops in surrounding areas, some say Zara’s Melbourne opening isn’t as big an event as some may believe.

CB Richard Ellis regional director of retail services for Australia & New Zealand, Joshua Loudoun, says there is certainly the possibility that any increased foot traffic would have knock-on effects for other retailers.

“If Melbourne’s store proves to be anything like the success in Sydney, there is going to be a lot of foot traffic for surrounding retailers, which are obviously going to benefit from that. That can create competition which could increase pressure on rents.”

“If there’s more demand for stores, then in theory that should drive up rents for surrounding retailers.”

But sources within the industry point out shopfronts right next to the Sydney location have been up for lease for some time, indicating there isn’t much pressure to snap up locations close to the fashion giant.

Certainly the Zara Melbourne location is surrounded by a strip of shops that would do well to benefit from increased foot traffic – but these experts say we’re in the wrong type of retail environment right now.

Essentially, they say Australia’s two-speed economy, the weak retail environment and Zara’s key demographic mean surrounding retailers won’t get much of a benefit from increased foot traffic, and won’t see rents rise much at all.

“I think Apple is more of a game-changer than Zara,” Loudoun says. “If you look at when Apple opened in Sydney, you saw Louis Vuitton go across from them. Apple attracts a demographic with a higher disposable income.”

Australian Property Monitors economist Andrew Wilson says the two-speed economy means shoppers may go to Zara to pick up a deal or two, but they aren’t necessarily willing to spend more at nearby stores.

“In terms of rent, you still have a hard time in the retail environment right now, businesses are competing with virtual infrastructure online, and you only need to see Borders as an example in this.”

“Honestly, that type of decreased traffic may just continue to put downward pressure on commercial rents.”

Wilson says all the economic data is interlinked – the rise of paying with cash instead of credit cards, increased savings rates and the rise of online shopping means consumers may not use their cash on surrounding stores.

“Zara tends to be a very localised product, in the sense the demographic changes depending on where you are. It seems to be designed for a more wider retail market here, and they may affect the local traffic.”

“You have a drop in spending, and a rise in savings. Of course, Zara is a niche process rather than a general consumer item and does very well, but in the big picture we’re seeing an adjustment in the entire retail industry here.”

Loudoun says while the Zara store in Sydney has been successful, and is likely to be so again in Melbourne, the demographic is much wider than other high-end fashion brands or tech stores.

“Whereas Zara appeals from teenagers to grandparents, and is good value shopping for fashion at affordable prices. Just look at the Sydney store – you see a much wider demographic of people.”