Shopping malls as community centres

Shopping malls as community centres
Shopping malls as community centres

Australia’s major shopping centre landlords are recognising the need for a mall to also play the role of a community centre as the sweeping pace of changes in technology and society makes a big impact on retail.

In fact, the retailing environment is the most challenging it has ever been, driven by both structural and cyclical headwinds, writes Adrian Harrington, head of funds management at Folkestone in Cuffelinks.

The arrival of global names in recent years has reshaped the retail landscape – Zara, H&M and Uniqlo to name a few. Amazon’s imminent arrival is already creating flutters in the market, he says.

At the same time, local retailers such as Dick Smith, Payless Shoes and Rhodes & Beckett have disappeared from the scene. The latest ABS retail sales numbers reveal anaemic retail spending, while online retail spending continues to gain momentum.

In spite of the buzz around Amazon’s entry some in the retail community say it won’t be easy for the online retailing giant.  Harvey Norman founder Gerry Harvey recently said in news.com.au that “Amazon in Australia, it is not going to be as easy as the US … most of the retailers there rolled over but they won’t here.”

In fact, a report from Colliers International says that Amazon’s value proposition combined with its need for immense space may make it difficult to find a suitable base within Sydney.

Figures 1 and 2 highlight the relative underperformance of retailers and the listed retail A-REITs in the past 12 months, as investors become increasingly concerned about how both components of the retail marketplace respond to the significant headwinds.

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Shopping malls as community centres

Click to enlarge

Shopping malls as community centres

Given retail assets comprise more than 55% of the listed A-REIT sector, it is not surprising that the relative performance of the A-REIT sector has been impacted. Westfield, Vicinity and Scentre, the three largest retail A-REITs, have all significantly underperformed the Index in the past year.

Harrington cites Victor Gruen — the designer of the first US shopping mall in 1956, saying, “The merchant has always been and will always be most successful where his activity is integrated with the widest possible palette of human experiences and urban expressions.”

Gruen envisaged that shopping centres need not be just a place of selling, but a place where the retail space is complemented by entertainment, cultural and community services. 

Harrington says shopping centres need to be recast as they recognise that people don’t just come there for a transaction. 

“They need to create a unique customer experience, one that engages with consumers, embraces technology to enhance the experience and inspires people to visit not because they have to, but because they want to. 

“In effect, they need to become a community gathering-place where people shop, play, work and live.”

Australia’s major shopping centre landlords are recognising Gruen’s vision almost 60 years ago. 

Harrington says retailers are revisiting their retail strategy, with the longstanding model of rolling stores out in every shopping centre changing to fewer but more innovative retail stores located in the larger, more productive ‘destination’ centres that offer consumers more than just a retail experience.

Southdale incorporated many of the features that have become synonymous with today’s modern shopping centre, he says. Southdale incorporated enclosed and climate controlled, anchor stores at either end of the mall, escalators connecting different levels and a public area in the middle.

Some of the best shopping centres in the country are becoming mixed-use spaces comprising hotels, residential and community facilities. 

Chadstone Centre, Australia’s largest shopping centre, has introduced the first Legoland Discovery Centre, and is adding a hotel and a 17,000 sqm office tower. Scentre, owner of the Westfield centres in Australia, is looking at residential and other entertainment options to complement their retail space.

However, the biggest impact of retail disruption will be on sub-regional and lower quality centres. These centres tend to have a higher exposure to discount department stores, limited space to incorporate non-retail drawcards, and lower productivity of their retail space.

He says investors looking at the retail sector are at a cross-road. With Amazon’s entry, the market will get more competitive and the gap between the winners and losers will widen and picking winners will be lot more difficult.

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Retail Shopping Centre

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