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Adopting digital to future-proof shopping centres

Shopping centres are effectively self-contained high streets and with that come some of the same serious challenges that are placing great pressure on many of the UK’s traditional shopping thoroughfares.

The shopping centre developer community recently came together in Cannes, south of France, for its annual MAPIC conference to debate the theme ‘Transforming Reality: Physical in the Age of Digital’.

The conversation highlighted an industry that is grappling with the challenge of adapting to the rise of digital and is investigating how best to develop the ‘shopping centre of the future’.

Mapic is held annually on the French Riviera
Mapic is held annually on the French Riviera

Recognising the change is Christoph Cuvillier, CEO of Unibail-Rodamco-Westfield – that operates many malls around the world – who says: “To be successful you need to have both channels as the future will be connected retail. Online accounts for only 10% of [total retail] sales but it will grow. Half of this will go to Amazon while the other half will go to those retailers that have stores.”

To grab these sales and remain relevant involves the shopping mall operators dealing with two challenging components – recognising the new demands of their more digitally-focused retailer tenants and also embracing new technologies within their own operations.

A new financial operating model

Fundamental to this is the realisation that the industry has to move away from its historical reliance on simply charging retailers turnover-related rentals – based on sales per sq ft. Melina Cordero, global head of retail research at real estate services firm CBRE, says it is the case that “all the industry knows that it needs to change this. In 2017 nobody knew the answer but in 2018 we are figuring it out. We are all working on it.”

This involves the likes of CBRE being “experimental” in the way that it works out the rentals to charge retailers. “There needs to be some customisation of the metrics because as retailers diversify their store types they could have different requirements for each outlet. Flagships and smaller stores could have different functions,” she says.

“The number one objective is to engage with the audience. The showrooms are not a retail channel to drive revenues, they are an extension of our online business"Philippe Chainieux, CEO of Made.com

Whereas some large units could be all about brand building others could be based around providing a predominantly click & collect-type function. The underlying point is that they do not operate as purely drivers of sales and thereby warrant different rental levels. As Cordero states, there is no longer a “hard and fast solution” to determining rentals for stores.

The complexity is highlighted by Julie Villet, director of URLab and CSR at Unibail-Rodamco-Westfield, who says that a physical store can be a major driver of online sales, which arguably could be factored into the metrics for rents. The value of opening physical units in shopping centres is certainly not lost on a growing number of historically pure-play retailers.

“The cost of media spending online is high and the returns are decreasing. Media costs are increasing by 40% each year but eCommerce click-through rates are more like 10%. A digital retailer going into physical can see their web traffic increase by 52% and for those retailers with less than 30 stores the increase can be 84%,” says Villet.

In order for these aspects to be taken into consideration when determining rentals Cuvillier says “we cannot see the internet as separate from physical retail” and so “we need more co-operation with retailers”.

Stores = experience

Philippe Chainieux, CEO of Made.com, is certainly clear about the benefits of the physical showrooms that his company is opening up around Europe and it is not about generating sales in the outlets. It is instead about the brand experience.

“The number one objective is to engage with the audience. The showrooms are not a retail channel to drive revenues, they are an extension of our online business,” he says, adding that as a result the stores do not have the complexity of having to hold stock and they only showcase a small, regularly changing, mix of products. Each showroom measures a modest 500-1,000 sq m and can therefore only hold a single-digit percentage of the company’s total number of SKU’s.

The growing appeal of regularly changing product mixes are also reflected in the rise of the pop-up and the embrace of short-term, more flexible, leases is another challenge for the shopping centres. As online-only brands increasingly look to use the pop-up mechanic to experiment with physical space the mall operators recognise that they must adapt.

Helping bridge the gap between landlords and brands is pop-up marketplace Appear Here where founder, Ross Bailey, says he has been bringing thousands of new brands into shopping centres by standardising the process for them taking short-term space.

Among the brands helped by Appear Here is online pyjama retailer Desmond & Dempsey that opened a pop-up in London. Although Molly Jeffery, founder of Desmond & Dempsey, says the store helped to ultimately sell the company’s new collection more quickly, its driving of 1,000 new Instagram users on the first morning of the opening was the major result of the shop. This further highlights the changing state of measurements of success around physical space.

The power of digital

Karen Harris, managing director of Intu Digital, is well aware of the value of Instagram and the power of bringing visuals into the engagement with shoppers in its malls. Intu has developed a virtual shopping assistant app that enables shoppers to take a photo of an item and for matches to then be surfaced that are available to purchase from the retail tenants in its malls.

The app is among a fleet of digital initiatives that Harris has been developing at Intu. This has included experimenting with robotics on its ‘accelerator’ programme that highlighted how care has to be taken with privacy especially if implementing facial recognition whereby the robots recognise individual shoppers.

Meanwhile, Stephen Brown, chief digital, marketing & communications officer at Hammerson, has also undertaken tests with robots. “We did a trial to overcome the issue of customers going home more quickly if they have lots to carry. It was a robot that followed the customer around while carrying their goods. We are a way off solutions being useful rather than getting in the way,” he suggests.

Hammerson has also been experimenting with video analytics and artificial intelligence – some of it with Cortexica – that has enabled it to better understand the movement of customers around its malls. Part of this involves a project with the Government that links into the company’s CCTV system and uses AI to model shopper behaviour.

“We’re looking for normal behaviour, which then enables us to recognise extraordinary behaviour. Staring at screens is a manual task so we’re using technology to do it more quickly and predict what will happen next. Using this [capability] in areas like service, discovery and security will be exciting for us,” says Brown.

The use of data is becoming integral to the operation of shopping centres, according to Martin Summerscale, head of analytics at CBRE, who says many decisions were “historically guess work” but with a $400 million investment in technology at CBRE the company is changing the way it manages/owns around 300 shopping centres.

One of the most exciting areas for Summerscale is the development of the Internet of Things (IoT), which he says will have a big influence on the company: “We’ve partnered with a Norway start-up that has developed sensors the size of Scrabble tiles that can detect light, heat and movement. They will help us save money as we’ll have better energy consumption, lighting and security [monitoring and management]. It will have a big impact on our physical assets.”

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