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The Rise and Fall of Shopping Centres

Does the online shopping juggernaut signal an end to a familiar retail institution?

Retail is hurting as more bricks and mortar stores feel the pressure from online merchants and the rising costs of a physical presence. Shopping centres, in particular, sit firmly in the firing line as calls for a solution reach fever pitch across the increasingly nervous sector.

According to Morgan Stanley Wealth Management Australia’s Executive Director of Research, Nathan Lim, centre operators will need to adapt to the changing economic climate in order to survive.

“Shopping centres need to become destinations that provide attractions and entertainment - and they need to constantly update to stay fresh and current,” Nathan said. “But in order to do those things they need to spend more money, as a way to attract a diminishing pool of consumers – it’s a double negative.”

Some fear that the death of the shopping centre as we know it will be a slow one, with the former retail-hubs declining until it’s cheaper to rezone the sites for apartment blocks.

Retail fail or a sign of the times?

Rather than a single trigger being responsible for the downward spiral of the shopping centre, a combination of factors created an inhospitable retail climate for their business model.

As more and more centres opened up, all touting similar products, large discount stores set up shop and offered everything from clothing and kitchenware through to sporting goods and electronics – all under one roof.

The discount/department store concept of a single location offering products from multiple categories had clear overlaps with the shopping centre modus operandi.

The Global Financial Crisis (GFC) also delivered bad news for a number of shopping centres under the umbrella of Real Estate Investment Trusts and large mall development groups.

Then came online shopping, and an accompanying generational change that saw Gen Y consumers contributing markedly less foot traffic to the domains of brick and mortar retail.

Another change has been the shift to combine retail spaces with apartment blocks or office towers. The ‘multi-use’ developments offer convenience to tenants and employees, but make a trip to the local shopping centre’s food court unnecessary. The result is less foot traffic and less people being exposed to the products on show in a shopping centre environment, which is tailored to steer people toward a spontaneous purchase.

For online retailers, savings can be found in the fact that they don’t need to acquire a physical site to do business. Those savings can then be funnelled into features such as heavily discounted, or free, delivery – providing a powerful cost incentive for consumers.

Consumers let their swiping do the talking

Apart from motivating potential customers with clear rewards like discounts and the ability to save time, the online shopping sector is also benefiting from the effects of consumer behaviour modification, largely brought about by new technologies.

According to Brian Nowak, an internet analyst for Morgan Stanley Research, accessibility and a fluid interface experience are driving an E-Commerce spending boost – with the new incarnation of a shopping centre taking on a lither, more mobile form.

“More people are getting smartphones in their hands and in their pockets it’s almost a license to buy more,” Brian said.

“Essentially, the fact that people are carrying around malls in their pockets  is causing them to buy more spontaneously and ultimately spend more money.”

 

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