Analysis: Online shopping forces malls to adapt

Bloomberg

Pedestrians pass an HMV store in London, U.K., on Tuesday, Jan. 15, 2013. Endless LLP, a private-equity firm that focuses on companies in distress, contacted HMV Group Plc's prospective administrators with a view to buying the U.K.'s biggest retailer of CDs and DVDs. Photographer: Simon Dawson/Bloomberg

Tom Bill Cannes, France

As growing numbers of shoppers move online, European mall owners are looking to pull in customers by including services that cannot be replicated on the internet, such as hospital care and government offices.

Malls must become more like full-service community centres to survive in the face of a growing list of failed retailers such as HMV and Blockbuster, property experts at the annual MIPIM trade fair in Cannes, France, said yesterday. On the flip side of that retail revolution, the experts expect big gains in warehousing as more goods are sent via post.

“The days of the stand-alone mall are numbered,” said David Roberts, the chief executive of architect Aedas, one of the five largest practices in the world. The company has been involved in city masterplan projects in Asia, Europe and the Middle East.

“In 20 years time you will find stores that sell books and DVDs replaced by sites that give people a reason to go to the mall… art galleries, education centres and health and spa treatments.”

Florencio Beccar, the fund manager of CBRE Global Investors European shopping centre fund, cited the recent purchase of a mall in Germany, saying the fact it included a large medical centre was “a big plus”.

“I once saw a clinic in a Brazilian mall where you checked in and are buzzed on a device when they are ready. In the meantime you go shopping,” he said. “With the ageing population in Europe you can see that happening more.”

Mall owners such as Land Securities, Intu, Westfield and Klepierre have increased the number of restaurants and cinemas to persuade shoppers to stay longer, and offer promotions to reward frequent shoppers who can be tracked via their cellphones.

But these steps do not go far enough, some experts say, in light of a forecast last month that 90 percent of retail sales growth in Britain, France and Germany between 2012 and 2016, or e91.5 billion (R1.09 trillion), is expected to be online, according to the property arm of French insurer AXA.

As well as changing what was inside, mall owners would need to borrow ideas from developing markets such as Dubai and China where centres were part of wider mixed-use developments where people lived or included open spaces where they spent leisure time, Roberts said.

Joe Valente, a managing director at JP Morgan Asset Management, said: “There is a complete lack of vision among many shopping centre owners. The big thing that’s missing is that unlike almost every other industry they haven’t caught on to building their own brand.

“Landlords fear cannibalising sales but in 10 to 15 years they won’t have a choice because they will be cannibalised anyway,” he said. In other words, a growing number of shoppers will move online whatever malls do.

“On a mall website you could book a parking space, a restaurant table or your car to be valeted. Why do people go to Covent Garden?” he asked of the central London district.

“There’s nothing there you won’t find anywhere else but I would argue it’s a strong brand,” Valente said.

Christian Ulbrich, the chief executive for Europe, Middle East and Africa at property consultant Jones Lang LaSalle, said: “Stores will get bigger and become more like adventure parks that attack all of your emotions.

“For example, Globetrotter has a climbing wall and cycle track in its Frankfurt store to try out its products,” he said of the German outdoor clothing and equipment retailer.

While retailers and mall owners struggle to find answers, all agree that warehouse property owners are the big beneficiaries of the change in retail habits.

Every additional e1bn of online sales resulted in an average additional warehouse demand of approximately 72 000m2 in Britain, Germany and France over the last five years, a report from warehouse landlord Prologis said last year.

“Logistics is the new retail,” said Simon Hope, the global head of capital markets at property consultant Savills, referring to the way changing consumer trends will affect the way investors see property.

“There is a trend of money moving away from all but the best and most regionally dominant malls into logistics as they are economically shielded,” Hope said.

The fact that the Norwegian and Chinese sovereign wealth funds had invested in the sector, as well as a report that Brookfield, lower Manhattan’s largest office landlord, was trying to do the same, shows serious bets were being made on logistics property. – Reuters