I’m excited once again to welcome another year as our industry continues to evolve at a frenetic pace and we are all challenged to forecast and act upon what the retail landscape will look like in the coming months and years.
Constantly buffeted by a raft of macro-trends, from economic cycles, demographic shifts, and population growth in our cities, to digitisation and disruptive technologies and climate change, our sector has adapted to a new norm, where the only constant is change.
The importance of looking out
I recently had the opportunity to observe the changing landscape of retailing in two great cities, London and New York, where I attended the National Retailers Federation (NRF). These cities are typically at the forefront of great innovation in retail, benefitting from deep catchments, a diverse city culture, employment streams and a constant flow of tourists. The moods in both cities, however, were quite different, which in turn seemed to be impacting on their entrepreneurial spirit.
The key difference related to the outlook on their respective economies. The mood at the NRF was upbeat, while in London, there was gloom, particularly around the outlook for retail. Exacerbated by Brexit woes, consumer confidence and spending are down, and the growth of online continues to beleaguer the High Street. Traditional retail malls appear to have had little investment, and minimal retailer churn as evidenced by store fit outs. This was the same story out of the US a few years ago, but the market there appears to be working through those changes and coming out the other side, albeit with far less active retail spaces.
However, I also saw some excellent examples of retail being reimagined in London in good sub-market locations. Coal Drops Yard at the revamped Kings Cross precinct, a massive urban regeneration project, for example, a revamped and re-energised Covent Garden, and a strongly growing wellness sector, which I’ll touch on later.
So, can we draw conclusions from the UK and US and what it might mean for Australia? I think whilst mindful of the differences, consumers across the globe have some similarities, which is that the old form of retailing that is struggling has lost some of its lustre, as have some shopping centres. The very core of retailing is rooted in creating everyday inspiration in people’s lives.
Harbingers of doom would suggest this points to the demise of ‘bricks-and-mortar’ retail however my opinion, and happily a more widely acknowledged view, recognises that retail will adapt and where it does, it will thrive.
In Australia, it is encouraging to see most retail asset owners becoming increasingly aware of the vital importance of understanding and responding to the diverse and constantly changing needs of their customers – essential in today’s always on, technology and knowledge-charged world.
At Mirvac, we are acutely aware of the infinite opportunities thrown up by the shifting landscape and we’re committed to applying our experience, creativity, innovation and customer insights to drive change that makes a significant, positive impact on people’s lives in the communities we operate.
Retail Reimagined
No longer places we frequent merely to buy things; Australia’s most successful ‘shopping centres’ are emerging as the heart and vital pulse of their communities, particularity in cities. As the average house size becomes smaller and people embrace apartment living, or medium density living, there is an innately human desire to find other places that offer social and cultural connections. Hence the function of shopping centres is moving beyond convenience to offer tailored, personal experiences, essentially an extension of people’s living areas and an expression of their communities.
Shopping centres, as community hubs, must provide flexible, engaging environments where people can gather with friends and family or mingle with likeminded people to work, learn and be inspired or just to spend time reflecting and recharging. We are in the business of creating sustainable places where people want to spend time, and operators want to be part of these unique community environments.
An example of this is at Broadway Sydney, where we’ve recently added amenity with the innovative Third Space; a high-tech, co-working hub, providing a 100m2 open plan workspace in the heart of the centre, the latest pilot to come out of Mirvac’s award-winning innovation program, Hatch. It has been a huge hit with both the broader community and the retailer community using the space.
The comeback kid
We also need to have a relevant offer. One thing that was reaffirmed in my travels, is that the physical store is still a key part of a successful retail brand. It is a ‘physical browser’ for consumers, and many digital native retailers (DNR) are using the physical store as a core piece of their engagement with existing customers and seeing it as a key plank to attracting new customers.
They are very much seeing the store less about inventory and more about engagement, recognising the power of the physical as another source of media. And, it’s also proving a cost effective one. DNRs are discovering that the physical allows you to create and curate engagement and build community – sound familiar?
Dirty Lemon is a digitally native beverage brand. I had the pleasure of hearing Zak Normandin, Founder of Dirty Lemon, speak at PSFK’s Future of Retail 2019 Conference: “Retail is our channel to build community. We launched the brand on Instagram. We’ve engaged with consumers predominantly in the digital space for the past two-and-a-half years. We’re finally at a place now where digital really is a commodity. I mean, every brand is on Instagram. And there’s a lot of content. Being a brand on Instagram just isn’t what it used to be. So, we’re shifting.”
Physical gives Dirty Lemon the opportunity to test new beverage concepts and they can collect data in an environment where they are able to engage positively with their customers. They are due to open their second store in the new Hudson Yards Shopping Centre in the northern summer.
ALLBIRDS is another DNR. They are a direct to consumer organic shoe retailer, and now have three stores in NYC, San Francisco and London. They are a sustainable shoe brand and refer to their shoes as ‘the most comfortable shoes you’ll ever set foot in’.
Tim Brown, Co-Founder and the creative vision behind ALLBIRDS commented that their stores were “the best marketing dollars we can spend”.
Green Street Advisors in a recent report* wrote of the emergence of a new wave of retailers who were ‘born online’: DNR. Many of these retailers are embracing the physical space, not just in NYC, but targeting both street retail and the high productivity centres, which typically have superior market fundamentals. They comment that the volume of physical stores occupied by DNRs has increased significantly, though do not expect them to take the same level of stores as traditional retailers.
Wellbeing is the new black
As consumers increasingly value experiences over material goods, wellness has emerged as the new status symbol. In NYC, wellness-focused retail has moved from hippy to high design, with retailers utilising luxe, tech-forward store design to appeal to customers’ expectations.
Scott Lachut, President of Research & Strategy, PSKF says, “the wellness sector provides us many examples on how experiences can be fused in retail. There’s also a lack of legacy and ‘this is how we always have done it’ attitudes in some sub sectors like cannabis, so there’s a lot of new ideas being tested.”
Goop (think Gwyneth Paltrow) is a digitally native lifestyle brand. They’ve recently opened their second permanent bricks-and-mortar store, selling a wide variety of the brand’s wellness and beauty products in an incredibly elegant interior. The store invites visitors to explore its apothecary and kitchen areas, where they also hold community events.
Gyms are reinventing themselves as social wellbeing hubs. A Colliers report on the London Gym market**, observed that consumer interest in maintaining better levels of wellbeing has never been stronger, with their research indicating consumer spending on gym-related activities is almost on par with ‘going out’ (ie. drinking and dining). In fact, from their research, 86% of members make arrangements with friends and partners around gym classes.
Mirvac is embracing our customers’ enthusiasm for health and wellness across its portfolio. For example, at South Village which opened in November 2018, our gym and yoga operators, Plus Fitness and Body Mind Life combined, take up 9% of the total GLA. At Orion we welcomed 12 Rounds Boxing Gym in October last year, in line with our customers’ desire to participate in a range of fitness activities, and a new 2,500m2 Virgin Active gym is due to open at the Met Centre in the coming months.
The store network has many uses
And let’s not forgot about the store’s role in last mile delivery (LMD).
Amazon has certainly set the standard for fast fulfilment, but bricks and mortar retailers are leveraging their stores to offer immediate and 30-minute pickups in some cases offshore. Shoppers at Argos can collect both large and small electronics from its stores immediately, depending on availability. Items can be reserved online for in-store payment and collection. The swift online experience is continued once in-store, as shoppers who’ve purchased items online have dedicated Fast Track collection points to retrieve their items using a pass code sent via text.
The future is bright for most
As I opened with, change is the new constant. Adapt or fail, be relevant or be obsolete, and invest in your business and choose the right markets. The physical is intertwined with the digital and it is no longer one or the other.
The great news is that digitally native retailers are embracing the physical environment to help bring their brands alive, and in many cases using the store as a fulfilment centre. More importantly, successful retailers are seeing the store as a key part of building community, which is the business we in the shopping centre industry have been in for years.
At Mirvac, we are fully engaged in the new retail paradigm. The strategy to unlock the potential of our portfolio of boutique urban metro centres and strengthen their position with a unique and tailored offering is on track. The portfolio has nearly doubled in value in the past five years. The enhanced services, partnerships and experiences Mirvac is creating has seen specialty productivity grow by 36% across the portfolio and with occupancy maintained above 99%, I am confident that we are in a strong position to continue to embrace change for many years to come.
* Property Insights, Retail Report, September 2018, Green Street Advisors
** Full Body Workout: A review of the Central London Gym market 2018/2019, Colliers
About Mirvac
Mirvac is a leading Australian property group, listed on the Australian Securities Exchange (ASX). Mirvac’s investment portfolio has interests in office, retail and industrial assets, while its development business has exposure to both residential and commercial projects. With more than 45 years of experience, Mirvac has an unmatched reputation for delivering quality products and services across all of the sectors in which it operates. Mirvac Retail owns and manages a dynamic portfolio of shopping centres across Australia’s eastern seaboard with total assets under management of more than $4.0 billion. Incorporating over 400,000m2 of retail space and more than 1,600 retailers, Mirvac’s centres have strong positions in their local markets with geographic, retail and economic diversity. The centres are individually branded, marketed and positioned to suit the specific needs of its customers in each of their unique catchment areas.
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