What’s happening in retail?
Installing new assets helps businesses to evolve and save
The face of retail has certainly changed in recent years.
Not just in terms of offerings and services – retailers have also experienced changes relating to competition, external economic influences, online shopping and the market in general.
There are a few current happenings in the market to take note of.
At present we’re experiencing the “Amazon Effect” and witnessing how Amazon’s arrival in Australia last year is impacting the market. In addition, a number of big,well-known brands are reviewing their offerings amid rumours of poor performance and shut-downs. Not to mention local independent retailers, who may be struggling to keep up in a market now awash with global brands and increasingly competitive prices.
But it’s not all doom and gloom for retailers.
According to recent research from Jones Lang LaSalle (JLL), demand for retail property has performed well. Retail property investment activity in 2017 was the second highest on record at $8.8 billion.
Savills Research confirms that all retail asset classes currently remain competitive and that last year’s strong performance is expected to continue for the remainder of 2018.
While we’re not seeing an end to retail by any means, from our perspective we are most certainly in the midst of an evolution.
According to JLL the retail sector is currently going through a period of adjustment. Savvy businesses are revising their business models to reflect changes in technology, the globalisation of the market and changing trends through generations.
Furthermore, many retailer investors are refining their portfolios, adjusting exposure to different asset types and seeking to diversify to improve their long-term risk profile.
These changes are helping to manage risks, while also creating opportunities and driving greater transaction activity in the market.
With a large number of products now online and often available at a cheaper price, physical stores are focusing on differentiating their product offering and are looking to give consumers an experience, product, service or atmosphere they cannot get online.
An example of this is shopping centres that offer unique experiences and services such as entertainment, food services, medical centres, gyms and other health facilities.
It’s also apparent from the large amount of capital being invested into the redevelopment of major shopping centres nationwide.
With all these market changes, it’s more important than ever that retailers remain competitive and manage their cash flow wisely.
As a result, we have seen a substantial increase in the number of retailers and owners of retail buildings requesting and organising depreciation schedules.
The example shown on the left demonstrates the difference that claiming depreciation can make to a retailer’s cash flow.
In this example, the business owner (tenant) rented a space and installed a range of fixtures and fittings to fit the space out as a small clothing store.
|Asset||Value||Depreciation rate||First full year deductions|
|Air conditioning – mini split system||$6,300||20%||$1,260|
|Change room chairs||$2,700||20%||$540|
|Floating timber floor coverings||$7,500||20%||$1,500|
|Removable light shades||$1,550||40%||$620|
|Mannequins x 4||$2,200||28.57%||$629|
Assumptions and disclaimer
The depreciation deductions in this cases study have been calculated using the diminishing value method.
In this scenario the client chose not to apply low-value pooling and they were not eligible to claim small business concessions.
While the retailer spent $34,750 on the fit out of their new business, they will be able to recover quite a significant portion of these expenses.
In the first full financial year they can claim $7,816 in depreciation deductions for these assets and additional deductions can be claimed in following years.
Request a quote for a depreciation schedule today and see how you can improve your cash flow.