More WOW, less boring – How to make Shopping Centers special
Mathias Sander is Director Leasing Strategy & Brand Cooperation at the dan pearlman Group in Berlin and responsible for retail and real estate clients.
The shopping center boom is over. With a good 480 objects, the peak has been reached. The magic 500 mark will probably not be surpassed. With the end of the boom, the consolidation and the competition between the locations begins which – this seems almost certain – not all centers will survive. Retail will not die, obviously not, but we definitely have too much sales space: rising vacancy rates, falling demand for space. For landlords, the horror scenario of the tenant market has long been reality.
The industry keeps calm on the outside but has to radically rethink on the inside. Frequencies and revenues no longer come by themselves. Today, simply being a shopping center is not enough. Those who cannot oppose the online retail with any arguments, any positioning or any experience will have to get used to significantly lower customer numbers. Any center investor still hoping to collect secure returns without significant investments in tenant mix, quality of stay and services is subject to a dangerous fallacy. And everyone who believes that everything will be fine with a few innovative ideas, a bit of digitalization and three additional café bars will readily hammer the first nails into the coffin.
CENTERS ARE NOT SPECIAL ENOUGH
Complex problems cannot be solved with simple recipes. And the situation is very complex: shrinking frequencies, the crisis in mainstream-fashion-concepts and pressure on rental models and contract terms. The magic potion formula for the branch mix no longer works. The traditional ingredients are suddenly rare. Many yield-optimized centers of the 2000s lack identity, ideas and inspiration. Many centers from the 90s are outdated. Why enter a shopping center when the atmosphere does not spontaneously delight you? When there is no feeling of self-reward because the place is not special enough?
LOVE WITHDRAWAL FOR SHOPPING CENTERS
For over 20 years, shopping centers have been the most successful form of retail distribution. They have made record returns in that time. Marketing budgets were reduced, ancillary costs optimized. However, current developments in the retail sector and changes in user behavior are jeopardizing the centers’ robust, rental-based business model. Today, rent levels are so high that profitable investments are unthinkable. Real estate funds that want to promise their investors secure returns year after year are increasingly withdrawing from pure retail properties. Shopping centers suffer from withdrawal of love. Residential and commercial properties are currently enticing with the higher dowry. The long-term cash cows urgently need to be returned to pasture so that they can survive in the long term. Their owners should start with a live-cell therapy now, if they want to avoid significant losses in value in the medium term.
A NEW UNDERSTANDING OF ROLES
This requires more than new seating facilities, an app and a new facade. What is needed is a mental restart, a long-term strategy, a clear positioning and often a different understanding of the role of the centers at the location. The harmonious integration into surrounding structures, long demanded by cities, must finally be improved. Centers have to open up their closed facades and act authentically at eye level with neighboring use concepts. Medical centers, social and family offers, daily leisure and community should not be understood as a necessary evil and a filler of space but as valuable puzzle pieces that make the location worth visiting for customers again and again. Centers must finally become brands, reconcile product and communication, tell a story that is not based exclusively on rental demand and the given sociodemography in the catchment area and that is identical for end customers, tenants, cities and investors. They must be internally consistent products that convey the same values to all stakeholders.
Centers have to expand their range of services and create added value. Perhaps, they even have to break away from department store architecture. During a normal shopping center refurbishment cycle, many retailers change their store design for more than three times. The re-equipping of rest areas, as is happening everywhere in shopping centers right now, is just a drop in the ocean. Of course, it’s nice to suddenly sit in comfortable upholstered armchairs, recharge your mobile phone and also have a power outlet but isn’t that just the airport lounge standard from ten years ago? Doesn’t it rather need the possibility to change significant mall areas flexibly and quickly? Doesn’t the fast-moving retail sector need more stage construction, more staging, more “WOW” to create a relevant third place? The Bikini in Berlin is a remarkable best case for shopping centers
Investors are in demand now. Selling is increasingly becoming a worse option, the market will continue to be flooded with overvalued properties and the center locations are generally good and capable of development. Dissolve your reserves and lead your objects into a successful future. Don’t just hold retailers responsible. They have their own issues to solve.
CUSTOMER LOYALTY AS A SUCCESS FACTOR
And you can still build on a strong power base in the centers. Many centers have a very high proportion of regular customers, often more than two thirds of all visitors: Customers who are second and third generation shopping in the same center, who do not want to reorient themselves at all but will do so, if the supply in the center continues to deteriorate. The operators must finally recognize that customer loyalty is of paramount importance in the competitive, shrinking stationary retail sector. It is worth looking at how loyalty works on platforms such as Instagram, Snapchat or Fortnite now and translating them to stationary retail so that generations who can no longer be activated via voucher programs, discount cards and offer flyers can spend their free time there.