An abandoned shopping cart: will retail malls face the same fate?
The rising penetration of online retail sales has dampened the occupancy and rental prospects of physical retail malls. This has led to many observers to question their relevance. Some are even predicting their demise and that there’s no future for them. We think contrary to this. We believe physical malls are here to stay, and they still have a role to play. However, it will not be business as usual. Malls will need to reinvent themselves, evolve, and find ways to complement online retailing. There will be fresh rounds of consolidation, new partnerships and new strategies. There will be winners and losers. The market may also rethink ways to assess mall values and rents.
- We monitor mall rents = Footfall x Spending per footfall x Occupancy cost ratio. With a rise in online retailing, physical malls are working harder to increase their footfall and spending per footfall, by reconfiguring tenant mix and increasing loyalty programs.
- Market studies of the US and Europe showed that physical and online retail can co-exist and complement each other. Multi-channel retailing* is an opportunity not a threat to mall operators.
- Even online retailers like Amazon and Alibaba are opening physical stores and buying over malls, which is further testament to the importance of physical stores. According to them, physical stores help to better engage customers, breed brand loyalty and gain trust, which in turn drives online sales.
- Overall, physical malls remain relevant but they need to evolve. An ultimate “future-ready” mall is one where they create a seamless retail ecosystem, supported by multi-channels, with added components of big-data technology and logistic supply chain management. At least, until they get disrupted again in the future.
- The winners are physical malls that have strong location attributes (like all real estate), optimal mall configurations, and roadmaps in place to roll out digital strategies. The losers will be those located in bad locations, limited scale and capital to invest in digital strategies, as well as strata-titled malls that lack mall management control.
* Multi-channel retailing is a marketing strategy that offers consumers multiple ways to buy products anytime, anywhere and from any medium, such as physical store, shopping website, mobile phone, interactive TV, and catalogue order mails.