A Cushman & Wakefield capital markets research survey
THE SURVEY
We set out to survey the largest and most active retail property investors in Europe to gauge attitudes among the leading innovators in the field.
The survey was based on an email questionnaire and we received responses from 22 players, speaking for nearly 1,500 centres, more than 20% of the European total.
Where not confidential, contributors included: Aviva, British Land, Casino Mercialys, CBRE Global Investors, Citycon Oyj, Eurocommercial, Immochan, Immofinanz, Inter IKEA, Intu, Lend Lease, Plaza Centres, Redevco, Rockspring, Sonae and Trigranit.
THE HEADLINES
E-commerce is rapidly gaining ground in all sectors and regions as businesses and consumers learn how to harness new technologies and new ways of working. But how is it shaping the shopping centre market and is it as significant as some headlines tell us?
According to the experts who took part in this survey, it is indeed a crucial force changing the industry but it is also just one of a number of factors. Indeed, many see it more as an enabler for bigger macro forces, such as demographics, economics, sustainability and globalisation. However, while retail is all about issues such as value, brand and quality, technology and e-commerce are embedded in each of these and hence it is increasingly difficult to draw a line between what is retail, what is e-tail and what is just good business.
Indeed, the degree to which technology is encouraging totally new business models to develop, means its impact is more material than other factors and in our opinion it should now be considered transformational.
To date, the impact is most visible in tenant mix, particularly an increasing food and leisure offer as schemes try to be multi-purpose event-based attractions. Centre and store technology are of course also changing with interactive screens, centre websites and free Wi-Fi increasingly the norm.
On many aspects, our survey respondents were not in full agreement but one area with a clear consensus was logistics as a major area of opportunity to improve service and efficiency as retailers move towards omni-channel and look to capture customer attention and loyalty.
Back in the store, a whole series of technological developments are coming forward; from beacons to “wearables”, mapping, digital wallets and more personalisation. Mobile technology in particular will be a catalyst for short-term change, inspiring more pop-up and mobile businesses for example.
The quality of the shopping centre environment and of the services available is expected to improve and this extends to marketing, with a multichannel approach needed, for example to make use of intelligence such as what is the most highly rated orviewed product on social media.
Looking forward, the pace of management change will have to be maintained – this is not a one-off adjustment but an on-going process of adaption. Staff training will have to accelerate as a result.
Relations between landlord and tenant will be under pressure, with security of tenure perhaps under threat as landlords seek more flexibility to adapt the offer of a scheme. Differing views between landlord and tenant are also apparent with respect to lease structures, service charges and unit sizes. At the same time however, there is more need for landlord and tenant to work together and indeed opportunities for landlords to provide new services for tenants; in webhosting, technology and fulfilment for example.
Centre managers as well as retailers will be looking to capture, analyse and make use of the vast amount of information open to them on customer behaviour. Greater and more intensive use of loyalty programmes will be one way forward. Via big data, they will look to improve customer experiences, put more personalised offers to customers and predict patterns of behaviour. They will also be looking to understand the synergies and drivers of their shopping centre – how different retailers or sectors interact and drive traffic.
The overall pattern of winners and losers stemming from these myriad changes is not yet clear beyond the obvious that centres must innovate and managers have to understand consumers, retail, technology and property.
Views also differ on the implications for centre size, with larger schemes more able to dominate but a clear role for smaller niche schemes if well positioned and with a clear identity. In a market driven by multiple channels and options however, old benchmarks of size and footfall may not be as important as they were and the “reason to be” for any type or size of scheme will be harder to define, with more emphasis falling on design and management.
Hence overall, while power continues to leak from retailers towards consumers, the “middle man” is sometimes seeing more potential – be that the middle man creating virtual shopping centres on the web or those nurturing the physical version. Understanding the influence of today’s changes and meeting differing needs will be all-important to winning the attention of consumers however and providing the right balance of entertainment and convenience will therefore be crucial.
SURVEY RESULTS
• The survey found strong support for the notion that e-tailing is a major force impacting on retailing but not that it is the most dominant – it is just one area of change.
• A clear view emerged that medium sized schemes would be most at risk while both larger destinations and smaller convenience centres have more potential to withstand or even benefit from e-tailing.
• Answering the threat of ecommerce is something all landlords have considered and all had a strategy in place. The top priorities overall were found to be improved centre design, followed by a stronger food and beverage offer and then more in-store and in-centre technology. The lowest priority among the possible initiatives outlined was assigned to providing more ancillary space in units, changing lease terms or having a stronger department store anchor.
• Landlords believe that retailers agree with them on the need for changes to the tenant mix to help generate higher footfall and also on a need to improve centre design and ambience. There are however some notable differences in the priorities of the two, at least based on the perceptions of landlords, with Wi-Fi and centre technology a more pressing issue for landlord than tenant but service charges and lease terms more concerning for retailers.
• The survey points to significant changes already taking place in the typical tenant mix with food & beverage and leisure the key winners alongside international brands and more local start-ups. Discount and value retailers are increasing but to a lesser degree while pick-up lockers are also expanding in number despite not being seen as a strategy priority among some landlords.
• The losers meanwhile appear to be mainly household goods, although supermarkets are not far behind. Department stores are stable to modestly negative, as are traditional anchors, but with a sizeable number pointing to either a decline or an increase, indicating uncertainty and ongoing change at the very least.
• Interactive screens are the most adopted technology in centre, closely followed by landlords operating their own transactional website and operating free Wi-Fi. Interactive mobile apps are next in line as mobile technology increases in importance.
• One area of strong agreement between respondents was on the increasing importance of logistics as well as a need for increasing efficiency in logistics and in all likelihood increased space needs – albeit this was not reflected in landlord views on whether retail units would need increased storage and ancillary space going forward. The relative value of logistics in absolute terms and to the success of the centre is expected to increase.
• There was also an agreement that leases would change further, certainly to become more flexible and probably shorter. There was a widely held view that some effort to capture non-store sales would be included in lease terms as the growth of e-commerce makes store sales a less significant indictor of store viability and relevance.
• There was meanwhile little support for leases to change to include other services such as delivery, broadband, analytics or marketing; perhaps because these are all areas retailers want to control to ensure a high quality and uniform customer service. Nonetheless, the rise in the number of retailers outsourcing or partnering in crucial areas including e-commerce shows there is potential for a trusted and reliable partner that offers the retailer a competitive edge.
• By country there was a majority citing the UK as most advanced in addressing e-commerce, followed by Germany, France and the USA. There was also a clear consensus for which retail sector was most advanced; fashion, followed by technology and then food.
• A broader range of responses however were reserved for which property sector was most advanced – overall shopping centres got most votes but department stores, retail warehouses, unit shops and factory outlets were all nominated; underlining the range of issues faced by the sector and the potential as well as the threat posed to each format.
