It can be argued that the retail environment is changing at faster pace than ever before. The implications to physical property will be very significant.
Over the next few months, MacroPlan will unpack five key trends that will impact the future of the retail property sector.
Trend four: Reinventing Retail – as ‘Non Retail’
I recently presented the keynote speech to the Property Leaders Group here in Sydney.
My topic was ‘Reinventing Retail – as ‘Non-Retail.’ I talked about the rise and increasing prevalence of ‘non-retail’ in shopping centres and shopping centre precincts.
Over the past 20-25 years, the proportion of household expenditure allocated to retail goods and services has steadily declined from around 50% to 40%.
I started by touching on some of the retail trends impacting retail property, including;
- Shift in values, behaviours. Less is more. People moving away from buying ‘stuff’ – want lifestyle, travel, experiences.
- Australia’s population is ageing, resulting in an increased demand for medical services, localised/accessible amenities and community hubs, town centres/villages (social connections).
- Long list of retail collapses and mass store closures. Dick Smith, Toys R Us, Payless Shoes, Pumpkin Patch, host of fashion retailers. House of Fraser in the UK. JCPenny, Sears and Macys in the USA.
- Pop Up stores are becoming more prevalent.
- General oversupply of malls and specialty space (US in particular). Unresponsive centres starting to struggle and lose market share.
- Online retailing growing fast (8% of total retail spend in Australia, forecast to grow at 1% p.a). Shopping centre footfall reducing.
- Retailers providing experiential/theatre retail, and embracing technology, are tending to survive and thrive. . New concepts – Lucky Strike (USA), Swingers (UK), Holey Moley.
Although it’s still a little ‘grey’, the Shopping Centre Council of Australia (SCCA) define non-retail as ‘all other non sales reporting categories – Banks, ATMs, Financial Institutions, Health Insurance, TAB, Gaming Venues, Amusements, Professional Services, Offices.
When referring to precincts, mixed-use or Integrated Developments (i.e Chadstone, VIC or Majura Park, ACT), we can extend specific examples to;
Medical Centres and ancillary
Schools, Libraries, Language Centres, Colleges
Fitness, well-being, swim schools
We consider there to be 9 benefits of an increased ‘non-retail’ footprint.
Spreads the risk, adapts to the changes.
- As mentioned, retail is changing fast, with many industry pundits saying we will see more retail disruption in the next 5 years than in the 20 before it.
Resource efficiency, the benefits of co-location with land use, energy and water consumption.
As part of a defensive strategy and market share protection
- For example, in a limited market such as a large country town, you might build the only cinema/ELP precinct that the market can support.
Underpins new precinct opportunities and retail expansions (i.e ELPs, together with more F&B).
- The addition of cinemas for instance can support a whole new casual dining and entertainment precinct. They feed off each other.
Re-purposes less than optimal retail space occupied by department stores, DDSs or failed big box retail.
- There will undoubtedly be more and more large space in shopping centres that requires backfilling. What are the options? This can be both an opportunity and a threat.
Individual non-retail tenants can in turn attract other like non-retail tenants
- For example, a new 500 sqm medical centre can spawn a whole suite of other ancillary medical offerings or related well-being or fitness related retail.
It can make direct commercial sense, not just a good ‘mix’ outcome
- Direct returns can be on par with specialty retail rents i.e banks, financial services.
Ultimately, it broadens the amenity. Increases the visitation and dwell time.
- Multiple customer and demand profiles add to the overall appeal. Promotes more spend.
So our message to landlords is to investigate the opportunities to broaden your tenant base and explore the options to future proof your centres.
General Manager – Retail