A New Zealand retail analyst believes Fashion Island's new owners Cotton On is embarking on a step change in the way it handles property.

Cotton on bought Fashion Island in July for a price believed to be substantially below its rateable value.

Fashion Island may mark a change of property style for new owner

Chris Wilkinson of First Retail Group says the Australian-based retailers' move into owning Fashion Island earlier this year, is a transformational shift in Cotton On's business, and a strategy which could see the increasingly dominant retailer having a big influence on shopping centres.

Fashion Island in Papamoa has around 20 stores and five of them will carry Cotton On brands. Cotton On owns seven brands including Typo, Rubi, Cotton On Kids, Supre and Factorie.

Cotton On says it is the first time the company has bought a whole shopping block anywhere in the world, and it did so because of the positive demographics in popular and growing Tauranga.

"Cotton On is, by floorspace, one of the largest occupiers in Australasia's malls when all its brands are considered,” says Chris. "As a tenant it has an increasingly dominant and influential position, especially with more vulnerable centres."

The Fashion Island move demonstrates how Cotton On can buy a centre, possibly for less than the cost of a new build, then add considerable value simply by adding their store portfolio, says Chris.

Because Cotton On owns several brands, it is possible for the company to get a similar effect as owning a "mega-store" but with each store having separate shopfronts.

"The purchase is a logical step, and mirrors the success of other leading retailers that are as much property owners as shopkeepers - such as Harvey Norman and Rebel/Briscoes."

Other shopping centres in similar positions, such as Montgomery Square in Nelson, could also lend themselves to the same "resuscitation" method, says Chris.

The fashion retailer, which has stated it wants to roll out many more stores and add 1000 new staff in New Zealand within the next two years, has 1300 stores in 18 countries.

"Cotton On has an insatiable appetite currently, exhibited by its continued roll-out programme," says Chris.

"However in the future the company may see better value in these 'destination' and 'cluster value' of co-locating brands."

Cotton On also still has a lot of retail categories it could develop further, such as homeware.

With large tracts of vacant retail space in some CBDs, "it will be interesting to see whether the company looks to develop similar models in urban locations ... such as Upper Hutt - where the company is not yet represented".

Catherine Harris/Stuff