Are brick and mortar stores really dying? It sounds like a morbid thought, but it is becoming way too real for shopping centre chain Vicinity Centres (ASX: VCX) that might be losing its customers to online shopping post Covid. The Company reported that fewer businesses are renewing their leases, with only a 0.1% increase in occupancy in Q1 FY23 since June 2022.

In 1Q FY23, leasing momentum from FY22 carried on with flat leasing spreads of -0.4%. In this quarter, the Company completed 376 comparable leasing deals, led by apparel and footwear, representing a modest increase on last year with 369 deals.

On a more optimistic note, since September 2019, Vicinity’s 1Q FY23 retail sales were up 21.2%, representing a three-year CAGR of 6.6%. Largely, its sales were led by specialty stores in apparel and footwear.

CEO and Managing Director Mr Grant Kelley shared, “We are the market leaders in Luxury retail as well as Outlet centres, both of which are weighted towards the strongest growing retail categories, being women’s and men’s apparel and fashion accessories. Pleasingly, strong retail sales and robust retailer confidence are also driving favourable leasing outcomes that support Vicinity’s current and future income growth.”

Footfall continued to increase with the total visitation portfolio boasting 92% of pre-COVID levels. However, visits are cut short once customers check out the price tags and put it in the ongoing inflationary context.

Kelley commented, “Our first quarter operating metrics reflect a continuation of the positive momentum delivered in FY22 and the ongoing resilience of the retail sector. While we are yet to see the full impact of recent consecutive interest rate hikes on consumer spending, we continue to be cautiously optimistic of a soft landing for the Australian economy given the strong employment market as well as household income growth and savings rates remaining in line with historical averages.”

Vicinity is not about to give in to the inflationary pressures or e-commerce boom. In fact, it has plenty planned to bring customers back. At Chadstone, Vicinity’s elevated entertainment and dining precinct, The Social Quarter, is set to open this Summer. It will include six new dining retailers and four entertainment offers, including Strike Bowling and Holey Moley mini golf. A new Coles-anchored retail and dining precinct opened in Box Hill South during the quarter. Finally, in early November, Vicinity will be opening a new fresh food precinct, comprising a new 3,900 sqm Coles supermarket. No doubt, the Company is counting on food experiences and Coles supermarkets to attract shoppers.

Kelley added, “Our prudent approach to managing our balance sheet, together with a disciplined hedging strategy (with approximately 80% of drawn debt hedged in FY23), means we are well positioned to continue investing in our growth priorities, such as our development pipeline and acquisition opportunities, despite the uncertain macroeconomic outlook.”

Vicinity’s share price took a massive hit during Covid, falling from $2.60 before Covid to less than $1 in January 2020. Now, though its share price is slowly picking up, it is still nowhere near its pre-Covid level, which might be an indication of a longer term trend of customers shifting to online shopping.