David Jones is to open a new department store in Wollongong Central to replace Myer Photo: suppliedDavid Jones is to lease the space being vacated by Myer at Wollongong Central, in the Illawarra, as part of the group’s roll out of its new concept stores.

Myer has decided not to renew the lease at Wollongong and another at Orange as part of its recently-announced strategy to consolidate its store network.

It will extend David Jones’ footprint in the area, with its existing Crown street store.

The Illawarra region is undergoing significant redevelopment with the university expansion and the growth in the population. David Jones said it identified Wollongong as “important” for its business.

David Jones chief executive John Dixon said the new store would “see us elevate our offering to deliver a premium retail experience at a prime location in the heart of the city’s fashion and entertainment precinct”.

“The Illawarra is an important market for David Jones and one we are proud to invest in. The major refurbishment of Wollongong Central, combined with a loyal and discerning customer base,  underscores this opportunity.” Mr Dixon said.

GPT Group’s wholesale shopping centre fund owns Wollongong Central and has spent $200 million upgrading the site, while the Wollongong City Council has improved Crown Street Mall, Keira Street and Globe Lane.

Wollongong Central’s regional general manager Antony Keenan said the new David Jones store was another “major milestone” in the transformation of Wollongong’s CBD.

“Bringing David Jones into Wollongong Central with a new format, along with the soon-to-be-announced entry of an international fashion brand to the centre, shows the confidence that exists in the centre and in Wollongong’s CBD,” Mr Keenan said.

The David Jones store will be 8,600 square metres of traditional department retailing and will operate across three floors, offering a mix of fashion, beauty, accessories, home and expanded food courts. It will look the same as the award-winning David Jones new concept at Eastland in Melbourne.

David Jones is also opening new stores at Pacific Fair on the Gold Coast and a smaller site at Barangaroo in Sydney.

GPT declined to comment on the international retailer, but leasing agents said it will probably be Zara or H&M, which is also set to call its centre home.

Myer will leave the centre in October and construction will start immediately on the new David Jones store, with an aim to be completed in late 2017.

Brokers at Macquarie Equities said Myer’s departure would have limited impact on the GPT centre, given David Jones is taking up the lease.

The Macquarie analysts said the Myer tenancy at Wollongong Central is about 12,000 square metres or about 21 per cent of the centre’s space.

“Assuming $200 per sqm per annum for the Myer tenancy and using the 6 per cent reported capitalisation rate, this represents about 10 per cent of the centre’s net property income,” Macquarie analysts said.

“We estimate that the impact is about 0.1 per cent for GPT, before re-leasing and refitting the vacancy, given its 20.2 per cent stake in the GPT wholesale shopping centre fund. The Orange Centre is held by a private landlord.”

According to the analysts, while the decline in department store segment is not new to Australian retail it is consistent with the department store model globally as seen with recent negative sales growth numbers reported by the US department store operators Nordstrom and Macy’s in the last few weeks.

“We generally remain cautious on the retail sector in Australia factoring our expectation for sales growth to continue to moderate for specialty retailers in line with slowing population growth and low wage inflation; currency headwinds to cost of good sales for apparel retailers with USD-denominated cost bases; continued negative re-leasing spreads, particularly for the regional landlords; and the presence of international retailers impacting sales ability to pass on higher costs,” the Macquarie analysts said.

They said that, following the closure of the Myer stores at Wollongong Central and Orange City, the next expiries are slightly longer-dated and are Westfield Carindale, owned by Scentre Group in July 2019 and Colonnades owned by Vicinity in 2020.

“We note that an early exit remains an option but will typically result in an upfront capital outlay,” the analysts said.

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