As fashion space in shopping centres falls, schemes must evolve to attract the modern retailer and shopper.
The UK’s 1,510 shopping centres are at a turning point. Retail is evolving at a pace never seen before and, if malls fail to keep up, many could soon find themselves redundant in the eyes of today’s retailers and consumers alike.
As online attracts an increasing share of retail spend, and shoppers visiting physical stores demand a more experiential, multichannel and tech-enabled shopping trip, retailers are reshaping their store estates and scaling back large legacy portfolios. Moreover, a post-Brexit vote drop in consumer confidence has coincided with a drop in shopping centre footfall – the latest figures from Springboard indicate it fell 1% year on year in September, a steeper fall than the 0.8% drop recorded in August.
Research compiled exclusively for Drapers by retail property adviser Harper Dennis Hobbs shows that the proportion of space in UK shopping centres occupied by fashion retailers has steadily declined over the past eight years. It now stands at 23.5% – down from 24.7% in 2013, and 25.8% in 2009.
The biggest drop has been in Wales, where space let to fashion retailers has fallen by 15.2% since 2009, followed by the West Midlands, Northern Ireland and the north-west, which have all experienced falls of more than 14%. The best performance was in Greater London, where fashion retail space grew by 3% since 2009, followed by the south-west at 0.6%.
Jonathan de Mello, director of retail consultancy at Harper Dennis Hobbs, believes the drop in fashion retail space take-up has plateaued as “the internet has reached maturity as a sales channel”.
Many malls have filled shops left vacant by fashion tenants with leisure operators (up by 13.6% since 2009), and discounters (up by 27.2%).
When it comes to signing a shopping centre lease, fashion retailers are now much more cautious, but many welcome the increase in leisure operators – such as food, bowling, cinema and mini-golf – as footfall boosters that can complement a strong fashion line-up.
Anthony Thompson, CEO of lifestyle retailer Fat Face, says: “Shopping centres used to be locations where you absolutely had to have visibility if you were a mass-market brand. For new, growing businesses and international brands, key shopping centres and trophy flagship locations were also must-haves, and were a signal of ambition and intent. Today, the combined impact of online and the economic reality of rent, rates and onerous service charges are making these locations optional for even the biggest brands.”
He warns that for malls to stay relevant, landlords “need to respond to the reality that there has been a shift in how people are shopping today, and make their centres more attractive to shoppers and tenants alike.”
This, he says, should include a more varied food offer and greater innovation: “The overall experience is what matters now.”
Agreeing with this sentiment, Touker Suleyman, Dragons’ Den investor and owner of Hawes & Curtis, says: “Shopping centres need to invest in a variety of both big and very small, niche brands to get the perfect mix to enhance the shopping experience. Variety and choice are key factors for drawing diverse clientele. This, in turn, will attract the best fashion tenants.”
James Doyan, managing director of consultancy Athito Retail, says “retailers also need to think about their space in a different way. Consider ideas such as pop-up food operators in stores to get people to hang around, and greater personalisation.”
He adds that store positioning and adjacencies need to be better planned to ensure navigating a mall “makes sense for shoppers”, and says retailers and landlords must pool their knowledge: “One thing that is missing is a view of who their customers are coming through the door. There needs to be better support in terms of analytics and drivers of footfall, and how retailers can tap into that. There needs to be better sharing of analytics across the mall.”
Thompson also wants to see greater partnership between landlords and retailers in terms of marketing and events, local community involvement, co-ordinated charitable activities and co-ordinated trading activity at key times of the year, such as Christmas and the back-to-school period.
For many retailers, tech is also high on the wishlist.
“The big malls need to ensure the environment is tech-orientated, so they have free wi-fi, digital screens and beacons so they can push offers to people when they walk in,” says De Mello.
He cites the example of countdown coupons used in US malls, which engage shoppers as soon as they enter by offering them a discount if they visit a certain store within a set time.
James Lovell, retail client executive at tech provider IBM Watson Commerce, believes “the fusion of digital and physical is key” and says shopping centres should leverage their collective might by offering added-value services such as personal shopping, collect-in-store delivery options and valet parking.
“If I could arrange for items from multiple stores to be available at a centralised collection point, where I can try them on and meet my personal shopper, after leaving my car in a valet parking space – that is something I would be prepared to pay for,” he says.
He highlights the example of South Korean mall owner Lotte Group using IBM Watson’s cognitive technology to develop an in-store “Intelligent Shopping Adviser” that offers product recommendations, in-store navigation and fulfilment support.
Lovell adds that, in terms of apps, malls can learn a lot from airports: “Many of the world’s leading airports make it very easy for travellers to navigate through their terminals using mobile services to find where they need to go, where they can shop, eat, park their cars, pre-book services and other things.”
David Atkins is CEO of Hammerson, which operates malls including London’s Brent Cross, Birmingham’s Bullring and WestQuay in Southampton. He insists “technology is not the enemy at the gate for shopping centre stores, but rather an opportunity for landlords and retailers to embrace.”
“Many have trialled or dedicated more space to interactive, experiential concepts,” he says, giving examples such as John Lewis’s “Smart Home” at Victoria Quarter in Leeds. Hammerson has been working with image recognition company Cortexica to launch a visual search app called Style Seeker, which allows shoppers to locate products within its malls based on images taken on phones.
Rival mall owner Intu operates Manchester’s Trafford Centre and Lakeside in Essex, among others. It has launched the Intu Accelerate start-up incubator programme to help develop new technology and services across its malls. The start-ups include GoInStore, which provides live in-store video for online customers, and TokyWoky, a community live-chat facility where online customers can receive real-time advice from shoppers.
But despite these innovative ideas, rent and business rates remain a core issue for retailers in shopping centres, and unless addressed will prevent many fashion businesses taking space.
Jigsaw CEO Peter Ruis is adamant that better partnerships between landlords and retailers should extend to landlords reducing rents to make taking space in malls more economically viable for retailers, and enable them to invest in their stores.
He says the increase in business rates in April, upward-only rent reviews and Brexit-related economic uncertainty have combined to create “a tipping point” in terms of shopping centre affordability.
“Many are charging unrealistic rents based on a 2001-type of landscape,” he says. ”They are unsustainable economically for most brands.”
“It comes down to the economics. If it is economically viable we can work together with malls to help them with footfall, but at the moment rents and business rates are too high.”
Both Ruis and Suleyman are keen to see more monthly and turnover-based rents to help with cashflow, but ultimately Ruis says landlords need to “start from scratch” and reconsider what is a viable rent to charge.
Thompson agrees: “[Landlords] need to be more realistic about rents and service charges, and work in partnership with retailers. Without true partnership the dialogue becomes purely transactional and economic, rather than one that focuses on how to make the experience for customers the most attractive possible. It’s about the economic sharing of upside and downside risk, but it is also about working together to deliver a better experience all round.”
De Mello adds that landlords should ensure they are able to provide flexible leases for brands, and realistic break options. He says many retailers are now pushing for one or two-year breaks on 10-year leases to give them greater flexibility.
Faced with rising questions over the viability of shopping centre fashion stores, the future success of many malls will be determined by the ability of landlords and retailers to work together to carve out economically sustainable, tech-led, heavily personalised and experiential offers. Without this, many schemes will see vacancies – particularly caused by the departure of fashion operators – continue to rise.
As Thompson observes: “The old-world model of single-channel retailing in expensive real estate is dead.”