Westfield spin-off to be ditched
OneMarket lost A$242m in two years
Westfield shopping centres are well known fixtures on Australian and New Zealand urban landscapes.
They are dotted in cities on either side of the Tasman, and around the world, after founder Frank Lowy built a global shopping centre empire, starting a small plaza in the outer reaches of Western Sydney in 1959.
But one thing that doesn’t come to mind when we think of Westfield or the Lowy family is digital business.
Lowy’s son Steven announced last week the tech business the family and other investors spun out of Westfield will be wound up.
It started life as Westfield Labs, part of the Westfield shopping centre business, aiming to provide consumer behaviour insights to its tenants and other retailers.
OneMarket, as it was known, listed in May 2018 after Steven Lowy left the Westfield group following its December 2017 sale for A$32 billion ($34 billion) to French-based UnibailRodamco. Through newly created company Scentre Group, the Lowys retained the Australian and New Zealand centres.
But OneMarket racked up losses of A$242 million in two years and has burned through $65m in cash in the past year. With revenue declining, investors lost patience.
This isn’t too unusual — for every tech start up that turns into a unicorn, there are dozens more that crash and burn.
But what happened next was unusual. Instead of pressing on, Steven Lowy and the board decided on an orderly wind up, with all proceeds given to shareholders.
They can expect perhaps $1 a share or more when the lengthy process is complete, meaning some will actually make money, as the shares were as low as 67c this year. Even on Friday, they closed at 92c.
It’s a contrast to the usual demise of a tech start-up, where there’s nothing left but a couple of old laptops and a foosball table.
None of this is to detract from Frank Lowy’s extraordinary achievements. When the empire was at its height in 2009 it was said someone who invested A$1000 in Westfield when it floated in 1960 was worth about A$148m. The windup of OneMarket is a reminder that past success doesn’t readily translate into success in the new economy.
House prices — here we go again
The Australian economy entered uncharted territory when the Reserve Bank of Australia cut its official interest rate to a record low 0.75 per cent and as good as promised to quickly follow it up with another cut to 0.5 per cent.
As the interest rate cuts lose their potency to give the economy a boost, the RBA has signalled it will look to quantitative easing. For most Australians QE remains some mysterious thing the Americans and Europeans did during the global financial crisis, something we haven’t had to worry about until now.
QE as it is known could take several forms. The RBA could lower official interest rates below zero, as Switzerland, Denmark, the Eurozone and Japan have done. Or it could buy government bonds, which would have the effect of lowering rates.
The idea is to push interest rates so low that banks would be better off lending money out rather than holding onto it. But overseas experience shows QE hasn’t worked.
Its main effect has been to push up asset prices as investors seek higher returns than the small or negative returns they could achieve by holding bonds. As a result, the rich got richer but QE didn’t do much for the rest of the population.
Australia faces the same risk with house prices. After a two-year decline, house prices in Sydney and Melbourne are roaring back. Borrowers can afford to pay off huge loans thanks to the record low interest rates.
The RBA is cutting rates to reduce the jobless rate and boost anaemic consumption, but there is a huge risk it is also pushing us closer to an inevitable house price crash.