The shopping centre as a hub of commercial and social activity. There was once a day when this statement was not only widely accepted as a truth, but was also an astutely accurate assessment of the role malls played within their communities. With movie theatres providing the entertainment, food courts serving as a platform for connection and human interaction and the assortment of stores offering all of the product anyone needed, the shopping centre was in many ways the nerve centre of the areas they serve. However, with the advent of ecommerce and the digitization of the world around us, the utility and purpose of the shopping centre has changed. And, according to Doug Stephens, prolific industry analyst and Founder of the consultancy firm Retail Prophet, in order to rediscover its place within communities across the country, shopping centres must reimagine and reinvent themselves in a changing retail environment.

“We can all agree that the woes and challenges of the shopping centre industry began well before the pandemic was a consideration,” says Stephens. “The truth of the matter is that the commercial and social utility that shopping centres once offered has become all but irrelevant. In its heyday, the shopping centre was Facebook – it’s where people went to meet up with friends. It was Netflix in the form of the movie theatres. It was Uber Eats because the food court had all kinds of different food options. And the list goes on concerning all of the commercial and social utility that communities received from their local shopping centres. Post-digital, this has become a problem. In the same way that the iPhone has replaced about 40 other devices in our lives, it has essentially replaced much of the social and commercial functionality and value of shopping centres. So, a shopping centre can no longer be a place with a reasonably well-curated selection of retail tenants and a little food and beverage sprinkled in for interest. It really has to become a fundamentally different business and social construct that brings people back to the shopping centre and creates utility for a new generation of consumers.”

A changed retail equation

Stephens points to the breadth of product selection available through online channels and the continued rise in the use of smartphones by Canadians as the two primary forcing functions behind the consumer’s shift in shopping behaviour. In the palms of their hands, today’s digitally-connected consumer has access to thousands of brands, a multitude of wares and an array of purchase and product transfer options, rendering a trip to the mall for many, particularly for younger shoppers, relatively pointless. As a consequence of this shift and the channels of commerce now available, Stephens goes on to suggest that the relevance of the shopping centre as a vehicle for brands has now come under question as well.

“When you get right down to it, retail is an equation based on value,” he explains. “And that equation is made up of consumers on one side and brands on the other. Retail, since the advent of the industrial revolution, has stepped in to be an intermediary between the two. So, the retailer has to provide a level of value to a brand as well as to the consumer. It’s been this way since the beginning of retail as we know it. But that equation is now changing. It’s not just a matter of opening up a store somewhere and conveying a bit of product knowledge on behalf of the brand to the consumer. Today’s consumer demands so much more. They can find whatever information they’re looking for online, research and compare product, ultimately amassing more knowledge than any store associate could ever acquire. And on the brand side, retail is no longer needed simply due to the proven ability of brands to reach consumers directly. As a result, there’s very little practical need for retail, with the exception of certain categories that we all acknowledge are more difficult to buy online. Now, if you take that lack of practicality and multiply it by a hundred, you’ve got today’s shopping centre.”

Rethinking the proposition

Stephens cites Nike as one of the best examples of a brand that’s decided to spurn the traditional wholesale distribution model in favour of moving squarely into direct-to-consumer sales. It did so back in 2017. Following stellar sales, improving margins, increased customer satisfaction, and stock prices that are 217 percent greater than they were when it made its pivot, the brand hasn’t looked back. And, given the fact that shopping centres are essentially a different type of broker, brokering retailers to consumers and providing an additional distribution node for brands, once their utility in this sense is marginalized, so too is the purpose that they serve. As Stephens suggests, this is an erosion in value that’s been occurring for the last couple of decades as malls across the country scramble to discover relevance, unable to find it in novelty food options or the hosting of occasional events. So, what does Stephens believe needs to happen in order to attract footfall back to the shopping centre?

“It’s going to take a fundamental rethink of the entire proposition,” he asserts. “And, ultimately, what many are going to find is that there are four pillars that the shopping centre of the future is going to need to be built on. First, a genuine and authentic sense of place must be developed. This is where most of the legacy shopping centres around us are challenged. They were built decades ago in the suburbs on land that was purchased at cheap prices, don’t offer a unique or distinct sense of place, are void of any genuine heritage and don’t reflect the communities they serve in any way. In fact, you could be shopping in any number of malls across North America and not know which community you’re in. Developers must be thoughtful in ensuring that the shopping centres their developing are created as places that are unique unto themselves and the communities they serve, creating an immediate connection with visitors.”

Mixed-use creations

Avalon in Alpharetta
Avalon in Alpharetta (Image: Avalon)

In addition to ensuring the creation of place, injecting reflections of the areas immediately surrounding the venue, Stephens says that developers also need to rely on population in order to create the right kind of engagement, complementing and drawing on the sense of place that’s been cultivated. He points to recent developments like Avalon in Alpharetta, Georgia, as a great example of what’s possible. Avalon is a mixed-use creation which opened in 2014 and boasts nearly 600,000 square feet of retail space, a 12-screen Regal Cinemas theater, more than 600,000 square feet of Class A office space, nearly 400 single-family residences, 250 luxury rental homes, a hotel and conference centre, all on an 86-acre site. At a glance, it seems to offer everything a visitor might need. And, adding further value, Avalon is the host of an estimated 290 events every year. It’s a recipe that Stephens says goes a log way toward ensuring the population required to support a successful shopping centre.

“Malls rely heavily on population,” he says. “The most successful developments around the world today are mixed-use where there’s a foundational human energy of people living, working, playing, shopping, recreating and relaxing, and doing it all in a communal way. Shopping centres have got to understand that they are now in the business of collecting, gathering and manipulating human energy for the betterment of the centre and the community it serves. Mixed-use developments that take all of these things into consideration present a really great way for developers to harness that human energy to great effect.”

Content production

With the pillars of place and population secured, Stephens proposes that shopping centres then need to find ways to communicate with and promote the value of the venue to their visitors in special ways that will keep them coming back while enticing would-be visitors. In essence, just as Avalon in Georgia, and others, are leveraging special events and unique happenings, tomorrow’s shopping centre needs to become something of a production house, providing people with the impetus to frequent the development while creating a catalyst for excitement, engagement and interaction.

“Shopping centres are increasingly realizing that they need to be producing compelling content that draws an audience to the centre every day,” he asserts. “In doing so, they have an opportunity to use that audience to create a media value for the brands that sit under their rooves. They’ve got to create an entertainment and hospitality venue to generate foot traffic. If that audience can be gathered into the space, then everything else starts to fall into shape, including influencing interest from brands that want to be involved. If brands believe that there’s a distinct media value attached to being at a shopping centre because of the content that’s being produced and presented, then there’s a significantly better chance that they’re going to want to buy into the lease.”

Keys to the future?

Taking the notion of content creation one step further, Stephens suggests that the entertainment doesn’t need to be confined to the audience that sits within the walls of the shopping centre. There are also opportunities for malls to stream live content to consumers around the world, broadening and expanding the audience that’s being reached and the exposure to the brands involved. And, according to Stephens, that’s exactly where the fourth pillar is leveraged to support growth in the digital world. Following place, population and production, tomorrow’s shopping mall is poised to become a platform for growth in the digital world.

“The shopping centre of the future will not be a monolithic building that’s open for fourteen hours a day,” he says. “Instead, it will literally be a flexible, manipulatable platform that’s open and accessible 24-hours-a-day 365-days-a-year. Consumers will be empowered to shop in-store, online, order ship-to-home, from just around the corner or from abroad. The shopping centre developer that can execute on creating a unique sense of place, drawing a population of visitors to the venue with strong content production, leveraging the venue as a platform to drive social and commercial engagement, holds the keys to the future.”

Revising the evaluation model

All of this is not to say that there aren’t any successful, even lucrative, shopping centres in Canada still operating within a somewhat traditional model. However, outside of a dozen or so premium locations throughout the country, consisting primarily of luxury and outlet malls, most in Canada are struggling, restricted by an outdated and broken design. It’s a concern that’s been recently noted and recognized by a number of industry analysts and observers. And, although the template to reimagine the shopping centre – the theoretical and practical blueprint to build exciting and engaging mixed-use developments – is available and in rife supply to mimic, Stephens says that there is a challenge in getting all stakeholders to equally buy into the solution.

“The biggest problem for shopping centre developers is around the whole idea of evaluation,” he says. “The question comes down to how we evaluate the financial health of a shopping centre. And, unfortunately, most of the industry remains pretty archaic in this sense. So, it’s fine for an enlightened shopping centre developer to shirk the selling of product and writing of leases as their core business in favour of becoming a production company and a place where human energy can be manipulated. But at the end of the day, when they apply for a loan, they need to provide information concerning their gross leasable square footage and how much of that space is tenanted versus vacant, essentially determining their credit-worthiness. As a result, we need to start accepting the idea as an industry, across the board, all the way from the investors to the developers, that the goals today when building a shopping centre are fundamentally different than they were 20 years ago. The new revenue model will not be based on sales per square foot or writing ten-year leases. It’s going to be about brands buying space as a media channel to reach consumers at opportune times for the purposes of customer acquisition. That means we need a completely different model for how we value that square footage and the ways we judge success within the industry.”

A revitalized shopping centre industry

It seems like a relatively tall order for shopping centre developers and mall landlords to create a venue that reflects the four pillars of place, population, production and platform that Stephens describes. And, ensuring the unique mix of brands, food and beverage, attraction and entertainment that’s required in order to elicit meaningful foot traffic and provide something for everybody is likely to be equally challenging. However, if the right pieces are put in place, helping to build the pillars of support that Stephens recommends, a return of the shopping centre to its status of hubs of commercial and social activity may very well be inevitable. And then the next step, Stephens adds, as we continue headlong into a new digital world, will be the sharing and leveraging of data in order to drive and hone the future of the shopping centre experience in Canada.

“Ultimately shopping centres will need to become adept at understanding the movement of consumers through their space. And in conjunction, they need to become a data engine for brands, speaking to them in media terms, providing them with specific information related to the number of consumers that have been at its threshold, the number of consumers that have crossed over it and how many took action downstream of the experience. Developers and landlords need to have an acute understanding of that dataset and share it with their tenants for optimal success. It’s not going to be an easy lift, and will involve skillful work to create a reason for visitors to share their data and mindfulness with respect to privacy concerns. But my belief is that the development of special memberships with unique privileges may be the enticement consumers will need. As important as data will be going forward, however, simply creating a shopping venue of this nature will go a long way toward providing visitors with the sense of community that people crave. From the beginning of time, we’ve sought out gathering points to commune, gather information and experience things. Shopping centre developers are beginning to realize this and have the opportunity to create some amazing spaces that will fill a fundamental human need while revitalizing and reenergizing the Canadian shopping centre industry.”

Source: Retail Insider