Future of shopping centers REITS remains bleak.
Retail REITs have been slammed by the unprecedented coronavirus-related economic shutdowns, adding further pain to a sector already dealing with the ongoing retail apocalypse. This is particularly true for shopping centers REITs.
A change in consumer habits
If consumption is at the hart of global economy and represents 70% of gross domestic product in the United States, the modern consumer faces a world where the temptation is permanent via the media and social networks. Core industry players in e-commerce and retailers have perfectly integrated the power they had with consumers.
Indeed, since the arrival of smartphones and the generalization of internet, the consumer compares prices, reads the ratings and comments made by other consumers and ensures the immediate availability of products. Then, a second-hand product, especially a brand, is no longer neglected as it once was. On the contrary, more and more people are renting, sharing, temporarily or durably exchanging products and services since possession is no longer a distinctive sign between individuals.
This consumer adhesion to the collaborative and circular economy is becoming more and more widespread and modifies our relationship with traditional businesses and the way we consume.
Shopping mall is no longer the best place to connect buyers to their customers and to share their values and inspiration.
Future of shopping centers REITS: a necessary reinvention
Today, shopping centers are facing a change in consumer habits and can no longer be passive spaces where people simply go shopping. They must become attractive places, where one can engage in several activities. Otherwise, this space will be relegated to the status of a relic that
“no longer meets the needs of the public, the consumer or the retailer, for sixty years”Rick J.Caruso, a real estate developer who has built some of the US’s most successful shopping centers).
Let’s take the example of the Randall Park Mall, in the US state of Ohio. When it opened in 1976, the Randall Park Mall briefly held the title of the world’s largest shopping center. However, it quickly lost its competitiveness, and in 2000, the shopping center was almost 92% deserted. In 2017, Amazon announced the construction of a nearly 80,000 square meter fulfillment center, right where the Randall Park Mall was.
Yes, the golden age of shopping centers is definitely behind us. If there is no doubt that online shopping has become much more competitive than shopping in shopping malls, it has prompted a lot of hype from media saying that “shopping malls are dead” and raises strong questions about its future.
According to The International Council of Shopping Centres (ICSC), 20% of shopping malls in the US generate over 72% of all sales. With is in line with Pareto 80/20 rule.
Some will continue their adventure by adapting their model while others will disappear as is already the case in the United States and thus will become fulfilment centers and shipping places for e-commerce players such as Amazon.
But some others can be reinvented! In some cases, shopping centers will not disappear due to online commerce; rather, they will help solidify online stores.
Vision of the future of shopping centers REITS
In 2018, Westfield unveiled its “Destination 2028” plan. Described as a “hyper-connected micro-city,” the concept of these shopping centers is driven by social interaction and community. In this “smart city”, centers are equipped with artificial intelligence and customers can have access to eye scanners that personalize their visit, and intelligent changing rooms offer an “extraperience” to potential buyers.
Westfield is already setting a foot in the future, with the launch the “Westfield Square” in London including a gigantic space dedicated to catering, entertainment, outdoor leisure activities, and the largest European Japanese restaurant, Ichiba.
The Chinese group Alibaba has also worked on its own version of the shopping centers of tomorrow with its “More Mall” concept; As a summary, it is a five-stages shopping center which opened its doors at the end of April 2018 in Hangzhou (the capital of the Chinese province of Zhejiang) and which brings together a number of Alibaba’s new technologies, such as “future make-up mirror”, “virtual fitting room” and automatic pay stations.
In Dubai, the Mall of the Emirates, distinguish itself by hosting leisure activities such as a ski resort and snow park, a 500-seat capacity Dubai Community Theatre, and Arts Centre and Magic planet, one of the largest indoor family entertainment centers in Dubai
As a conclusion, its true to say that not all shopping centers will necessarily stay open. Those who will survive will no longer be exclusively dedicated to shopping but will bring a new experience for customers or will help solidify online stores. It will bring together “restaurants, leisure and entertainment”. Shopping will only be a complement (and a little extra pleasure) and no more necessarily the primary reason that will drive us to move.