4 models of the shopping center of the future

Despite the strong growth in retail sales in 2017, the retail real estate market continues to be disrupted by trends that appear to be accelerating in the future. US shopping center vacancy rates in the first quarter of 2018 are the highest since the end of 2012. The overall commercial real estate vacancy rate stood at 10% in the first quarter, according to data compiled by Reis.

Filling those vacant retail positions will only get more difficult, suggests a report by the Advisory & Consulting group of Green Street Advisors. The report focuses on trends for tenants online, rather than anchors. Given that online tenants have the greatest impact on the net operating income of shopping centers, the report states that “their performance offers a prime indicator of the health of shopping centers.”

The news reported by the Green Street Advisory Group is not good. Some 70% of the 950 malls surveyed saw a decline in the number of online retail tenants nationwide, and the closures of these online tenant locations are scattered across “the quality spectrum”, not just in substandard malls. And online tenants who close are likely to do so on QT, with no formal announcements and no store closings after leases expire.

While there are emerging retailers looking to open physical locations, the report notes that these new tenants are more location-demanding and are opening stores at a much slower pace than in the past. Some of the best prospects for filling those gaps include Hanna Anderson, Peloton, Fabletics, Suitsupply, Warby Parker, and Bonobos.

It’s time to act

Shopping centers are at an inflection point. The old mall shopping model is being scrapped, and reinventing a new kind of mall from the old mall bones of yesteryear takes significant investment, creativity, and planning time. A new report from AT Kearney, titled The Future of Shopping Centers, provides a blueprint for the shopping center of the future.

“The commercial real estate industry is at a crossroads,” the report says. “A fork leads to the status quo – a predictable and problematic Darwinian scenario in which weaker malls and malls continue to close due to lack of customer interest, changing demographics, or the inability to develop a sustainable alternative to digital competitors who are becoming more and more powerful every day. The other path – and the one we’ll explore here – leads us to an industrial future that has never looked better, at least for those who are brave (and wise) enough to pursue it.

The way to discover that the future “has never been better” for shopping centers is to re-imagine and redevelop malls and shopping centers into “consumer engagement spaces” or CES. The now outdated idea of ​​malls as places for retailers to deliver product offerings to a mass market needs to be replaced with an attraction marketing approach where the mall is designed around the needs and interests of the mall. ‘an increasingly diverse consumer market, often segmented by age, ethnicity and locality.

“To be successful in the future, the industry must think like the customers it serves,” the report says. The main challenge for malls is to see retail spaces in a new way, not primarily as places to connect consumers to products, but as places where people interact with brands, experiences, entertainment, service providers, and even live and work.

Shopping malls must become America’s new ‘main street’, where people feel a real sense of community and belonging , not a false or bogus approximation of it. “Their common focus will be less on selling things and more on creating a platform that facilitates selling by recognizing and understanding individuals and affirming them and connecting them to cohorts of affinities sharing their values ​​and fundamental aspirations, ”describes the report.

To help mall owners, operators and tenants find the right platform for their future, report authors Michael Brown and Matt Lubelczyk outline four different mall models that will dominate by 2030.

Shopping center of the future in four different ways

The guide to transforming malls and malls into consumer engagement spaces is based on the growing consumer demand for more things to do, rather than things to buy and own. CESs of the future will include retail stores, although often in smaller formats with less reliance on inventory and more focused on creating personalized brand experiences through virtual reality, augmented reality or mixed reality where consumers can personalize their unique shopping and product experiences.

Limited-time pop-up shops will also be important for new CES centers, as they provide visitors and guests with unexpected scavenger-hunting experiences, and most importantly, are a testing platform for new retail concepts and brands. CES should also be designed around convenience, as time is the ultimate luxury for consumers. Yet ESCs must also offer compelling ways for people to spend time, their most precious resource, by offering experiences and things to see and do that will reward their time investment.

The AT Kearney report describes four different models for the CES of the future: destination centers, value centers, innovation centers and retail centers.Destination centers are the oversized version of future CESs

The idea of ​​the destination hub is probably the easiest to imagine, as flagship stores will play a bigger role with dramatically enhanced experiences added to the mix, including restaurants, theaters and event spaces, museum exhibits, and so on. as attractions like theme parks, indoor ice rink and ski slopes, and water parks. The Mall of America in Minneapolis is a current example, as are the American Dream Centers under construction in New Jersey and Miami.

These will be real destinations, suitable for weekend vacations, not so much for everyday shopping. As a result, competition for these destination hubs will be national, or even global, not necessarily local. Hospitality providers and the attraction of visitors from afar will be critical to success. And the actual number of true destination centers the country can support is limited.

Value centers share customer values

Value centers, not to be confused with value centers (i.e. These value centers are anchored by an idea or concept, not by a large retailer. This could be a viable route for many smaller malls in the world. countries which cannot become a true destination center.

The key to success for the value center is to look to its local community for this organizing idea. The concept can be health and wellness, local food, artisans and manufacturers, causes such as animal rights or ethnic identity. Models of these evolving value centers include Eataly, Culver City’s Platform LA, Atlanta’s Plaza Fiesta, and Fort Worth’s LaGran Plaza.

Innovation centers are digitally powered

Innovation centers are powered by technology so that each store and the center itself collect real-time data to keep shoppers happy and grow with them. The authors of the report see innovation hubs employing anthropologists, cultural psychologists, and ethnographers to turn the massive amounts of consumer data collected into information that shopping malls and partner tenants can use to improve and evolve shopping experiences. ‘purchase.

Models for innovation centers include Apple’s flagship store, Amazon Go, and Nordstrom Local. These centers will become important places to beta test new technologies and applications, so pop-up spaces will be important to maintain a constant flow of new ideas, like the STORY store in NYC, which has new sales stories. thematic retail every 6 to 8 weeks. The innovation centers will combine high-tech and high-touch to create futuristic customer engagement spaces.

Retaildential centers redefine life above the store

The evolution of retail centers will have elements of value centers, as they will be focused on a specific life stage or lifestyle consumer with common needs and interests, but will be enhanced by residential housing to make CES more than a place to visit, but a place of life. The need for affordable housing is great among mature baby boomers, who are looking to downsize and have convenient access to a variety of services, as well as among young professionals drawn to ESCs that offer retail stores, restaurants and theaters, work-play offerings, gyms and spas.

Examples of how to combine work and play at a CES include the campuses of companies like Nike, Google, and Microsoft, with the addition of apartments and condos adding the dormitory to those work-play-live spaces.

Reinvent the shopping center of the future before it’s too late

The AT Kearney report calls on mall owners and developers to use these models as a roadmap to create customer engagement spaces for their future customers, visitors and guests. The future of newly imagined CES is bright and is only limited by the imaginations of shopping mall owners and developers.

“The future of commercial real estate is as robust as the imagination of the industry”, Brown and Lubelczyk write. “Future success depends to a large extent on the ability to ‘unlearn’ the lessons of the past. The success of tomorrow will lie with operators and tenants willing to break with yesterday’s patterns and practices and fully embrace a consumer-centric future. This is wise advice for everyone.

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Peggy P. Gilmore