The Reinvention of the Mall: How Shopping Centres are Adapting to Global Buying Habits

January 2016

Faced with reduced footfall, cautious consumer spending and a new focus on omnichannel retailing, shopping centres have had to become more than just places to shop. To remain relevant, they must offer a unique experience and are repositioning themselves as community hubs, lifestyle centres or vast, glitzy entertainment complexes. This new global report analyses mall development, shopping behaviour and the strategies employed by mall developers and tenants to enable them to survive and grow in

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Retail Trends

Shopping centre performance has benefited from a strong recovery in global retail sales since the recession of 2009. Over the 2010-2015 period, total retail sales grew at a steady rate of just over 5% per annum in current value terms.

Private consumption has been boosted as a result of lower oil prices and low inflation in many markets. However, much of the growth came from emerging markets, driven by rising disposable incomes and aspirational spending among the middle classes.

India was a dynamic market, recording 22% constant value growth in retail sales over 2010-2015. The market is being driven by the growing number of young, mainly urban, shoppers.

E-commerce and m-commerce have increased in recent years, on the back of improving broadband and mobile technology, and the lower costs of internet-enabled devices. This type of shopping meets consumers’ needs for convenience, value and flexibility.

Online marketplaces and virtual malls, which have gained significantly in popularity, compete to some extent with physical malls, in that they enable consumers to find everything in one place.

In 2015, China overtook the US to become the largest market for internet retailing. While shopping centres in China continue to perform well, the e-commerce boom has impacted the industry, due to the runaway popularity of vast virtual malls, such as Tmall.com and JD.com.

Shopping as a Leisure Activity

Since 2007, shopping as a leisure activity has been impacted by economic uncertainty, alongside long-term trends for ever busier lifestyles and the move towards e-commerce. In emerging markets, a rise in the number of working women is reducing the time available to them for shopping.

Nevertheless, shopping is still a key leisure activity. In Euromonitor International's 2013 Middle Class Home Survey, 50% of respondents who said they would prefer to spend time away from home on a free day would go shopping; the highest percentage among all activities.

Leisure shopping is especially popular in emerging markets, with respondents in Turkey being the most likely to say they would shop on a free day (76%), followed by those in Indonesia (62%), Japan and China (both 61%).

According to Euromonitor International's 2013 Global Consumer Trends Survey, 43% of global respondents like to visit shopping malls, while the same percentage said they like to browse in stores even if they do not require anything specific.

Foodservice trends

Trends in foodservice also impact the shopping centre sector, since food and drink is playing an ever greater part in the tenant mix. The foodservice market in general has continued to perform well, as it is seen as an "essential luxury" for consumers, even in harder times.

Despite just over three quarters of consumer foodservice sales still being generated from outlets in standalone locations, Euromonitor International's statistics show that retail-based outlets gradually increased their share of consumer foodservice value over the review period.

The traditional central food court concept is becoming outdated as developers locate eateries in more accessible places within the mall. They are also introducing more diversity of offer, as consumers demand healthier and more exciting food concepts.

Centre Development and Performance

Commercial real estate agent Cushman & Wakefield estimated that across the 51 countries it tracks, there was a total of 46,846 shopping centres of over 5,000 sq m in size in 2013. In total, these covered a gross leasable area (GLA) of 924.5 million sq m.

Malls in Asia and Latin America are far larger on average than those of Europe and North America. China boasts by far the largest shopping centres in the world, with an average GLA of 85,625 sq m in 2013.

According to CBRE, another commercial real estate agent, large shopping centres (those with a GLA of over 20,000 sq m, excluding outlet centres) continued to grow in 2014, with 11.4 million sq m opening in the 171 cities surveyed.

Throughout the Asia Pacific region, consumers have embraced shopping malls as an integral part of their lifestyle, driving demand for bigger and more innovative developments. Seoul, Kuala Lumpur and Manila featured in the top 15 most active cities in 2014.

The US shopping centre industry is more mature, with a number of small and mid-size malls closing in recent years. Nevertheless, Nielsen reported that large malls of over 200,000 sq m GLA grew by 3% in 2014, with occupancy rates reaching 93% – the highest level since 2008.

Throughout Europe, many developers have opted for increasingly large-scale projects, with significant leisure offerings and an increasing share of foodservice operators, in order to give centres a unique identity.

Moscow saw the addition of 600,398 sq m of space in eight centres in 2014, including Avia Park, which became Europe's largest shopping mall with a GLA of 231,000 sq m. However, the sector was hit late in the year by Russia's geopolitical problems.

Shopping centres in the Middle East and Africa region have grown in number and size, thanks to an expanding middle class, the continued presence of expatriate residents, cushioned by tax-free incentives, and a growing shopping tourism industry.

While foot traffic may have dropped since the start of the recession, shopping centres have generally become more profitable, as developers are more flexible with regard to how they use their space, and more savvy about how to match the size of the store with the size of a market.

The Reinvention of the Mall: How Shopping Centres are Adapting to Global Buying Habits

EXECUTIVE SUMMARY

Retail trends
Shopping as a leisure activity
Foodservice trends
Shopping centre development and performance
Chart 1 Global Shopping Centre Inventory by Region 2013
The mall as a community hub
Diversification
Technology
Factory outlet centres
Sustainability
Outlook
Summary 1 Key Features of The Future Mall

DEMAND FACTORS

Retail Trends
Retail sales benefit from growth in private consumption Chart 2 Global Retail Sales Growth Versus Disposable Income Growth 2011-2015 Developed markets experience sluggish growth Russia feels the effects of the Ukraine crisis China’s retail boom India’s young consumers drive retail growth Table 1 Retail Sales by Country 2010/2015
The rise of internet retailing
E-commerce trebles its share Effect on shopping centres Chart 3 Global Store-based Versus Internet Retailing 2010/2015 E-commerce soars in China Table 2 Internet Retailing in Selected Countries 2010/2015 M-commerce is a burgeoning niche Chart 4 Mobile as a % Total Internet Sales by Country in 2015
Omnichannel retailing
The emergence of the hyperconnected consumer 43% of hyperconnected consumers involve a computer in the shopping process Shoppers prefer to buy clothing in-store Showrooming Chart 5 Frequency of Showrooming 2014 The desire to see and feel products Chart 6 Reasons for Showrooming 2014 Webrooming Chart 7 Frequency of Webrooming 2014 Consumers want to have all the facts before going to purchase Chart 8 Reasons for Webrooming 2014 Competition from virtual malls
The importance of leisure shopping
Consumers have less time to shop for pleasure Window shopping is a new pastime in China Chart 9 Favourite Activities Away from Home on a “Free Day” 2013 Chart 10 Shopping as an Away-from-Home Activity by Country 2013 Over two fifths of consumers like to visit the mall Latin Americans like the security offered by enclosed malls Chart 11 Attitudes towards Shopping 2013 Chart 12 Respondents Agreeing with the Statement “I Like to Visit Shopping Malls” by Country 2013 Half of US consumers combine mall visits with online
Tourist shopping
The US remains the top shopping destination Chinese tourists flock to shopping hot spots Asian cities include shopping in their tourism strategies Japanese malls step up tourist services Table 3 Shopping by International Tourists 2009/2014
Consumer foodservice trends
Retail locations take growing share of business Chart 13 Global Foodservice Sales by Location 2014 Eateries play a vital role in Indonesian malls Most countries see a rise in retail share of consumer foodservice sales Malls are the preferred locations for Indian fast food chains Less focus on foodservice in developed market malls Chart 14 Retail Share of Foodservice Value by Major Market 2009/2014

SHOPPING CENTRE DEVELOPMENT

Global trends in 2014
US accounts for two thirds of the world’s shopping centre space 11.4 million sq m of mall space added globally in 2014 Chart 15 Top 20 Global Cities by Shopping Centre Completions 2014
North America
Community centres dominate mall landscape Lifestyle centres gain popularity Las Vegas saw the most development in 2014 Summary 2 Types of Shopping Centre in the US 2014
Europe
The UK and France have the largest number of malls German malls are older and smaller Chart 16 Shopping Centre Density in Selected European Countries 2014 Table 4 Number of Shopping Centres and Floor Space in Selected European Countries 2014 Russia and Turkey drive growth in Europe Ukraine crisis leaves Russian malls empty Lifestyle centres are popular in Turkey Growth stalls in Western Europe
Asia Pacific
Demand remains strong in Japan China expands the fastest Seoul, Kuala Lumpur and Manila also highly active The emergence of mega-malls India’s malls driven by expansion of international brands
Latin America
Malls seen as a safe haven Monterrey, Mexico, sees most new mall space added in 2014
Middle East and Africa
The Middle East’s gleaming malls deemed a status symbol South Africa in expansion mode

SHOPPING CENTRE PERFORMANCE

Malls become more efficient US welcomes upscale malls Sales productivity on the rise in the US Summary 3 Top 10 Malls in The US by Sales Per Square Metre 2014 EU sales reach all-time high Chart 17 “Shopping Centre-Inclined Sales” in Selected European Countries 2014 Almost two thirds of China’s malls are profitable Early mismatch between demand and supply Indian developers also learn from past mistakes

TRENDS AND STRATEGIES

Introduction
The mall as a community hub
A place to congregate Malls take over the role of public parks in the Philippines Developers take on board community needs The growth of ethnic malls
Differentiation and diversification
Greater emphasis on services and experiences Competing with the online offer A focus on family entertainment South Korea promotes the “precious family” concept Summary 4 Shopping centres Centred Around Family Attractions Pop-up stores
The drive for convenience
One-stop living The offer of incentives Combining grocery with leisure Integrated developments
The changing role of foodservice
Restaurants replace retailers Food and drink options are important Chart 18 Importance of Food and Beverage Availability when Shopping 2015 Swiss and Norwegians spend most on in-mall food and drink Chart 19 Average Spend Per Visit, All and Food and Drink, by Country 2015 Chart 20 Average Spend Per Visit , All and Food and Drink, by Gender 2015 Chart 21 Average Spend Per Visit, All and Food and Drink, by Age Group 2015 Almost a third of consumers visit the mall just to eat or drink Chart 22 Propensity to Shop when Visiting a Shopping Centre Primarily for Food by Country 2015 Asian malls have the highest proportion of eateries Food becomes the new anchor Making food offer available at different access points Quality of food increasingly important Chart 23 Food and Beverage Options that Consumers Would Like to See More of, 2015
Integrating technology into the mall experience
Maximising interaction with customers The use of QR codes The rise of beacon technology Wi-Fi marketing systems Digital advertising
Stores become showrooms
The emergence of catalogue stores Internet retailers establish a bricks-and-mortar presence
The growth of factory outlet centres
Appealing to bargain-hunters US sees resurgence of growth Factory outlets move into urban centres Cutting costs to maintain margins European outlet centres are a tourist draw China’s outlet malls expand to second and third-tier cities Summary 5 Selected Outlet Malls Around the World
Sustainability
Green roofs Japan’s malls offer rooftop gardens
Knowing the market
Baby Boomers drive growth in upmarket suburban malls Urban developers focus on Millennials Younger generation are social shoppers A place for teenagers to hang out Young people like the personal touch

OUTLOOK

The outlook for retail
Emerging markets will drive growth in short term Saudi Arabia and India to witness strongest growth Chart 24 Forecast Retail Sales Growth by Country 2015-2020 Internet retailing will continue to take share from physical outlets Middle East and Africa markets will remain undeveloped Chart 25 Forecast Share of Internet Retailing by Country 2020
Shopping centre development
China will continue to dominate future mall development Dubai gears up to develop the world’s largest mall Western Europe and the US will focus on overhauling existing malls France leads pipeline development in Western Europe Turkey and Russia hold strong potential Chart 26 Leading Cities for Space Under Construction in 2015
Trends to watch
Convenience, excitement, connectivity, value Aiming for the prize retailers Mixed use developments Outlet malls hold plenty of potential A greater emphasis on foodservice Chart 27 Retail Share of Foodservice Value – Top 10 Markets in 2019 Omnichannel is the key to survival for retailers Personalising the shopping experience The emergence of robotic technology
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