CANNES, France — Brick-and-mortar retail is ripe for reinvention, with the borders between countries, the digital realm and leisure pursuits continuing to blur.
This story first appeared in the December 1, 2014 issue of WWD. Subscribe Today.
That was among the key takeaways from the 20th-anniversary edition of the Mapic retail real estate fair here, which ended its three-day run here Nov. 20.
Developers are increasingly looking across oceans to identify new retail hot spots, making borders disappear, while catching retailers’ attention with new shopping formats that merge fashion with fun.
The bellwether fair saw the number of exhibiting companies grow 3.2 percent to 3,280 versus a year ago, with 72 countries present at the fair, up from 67 countries in 2013.
Attendance improved 2.4 percent from 8,200 in 2013 to 8,400, with 500 new brands including Saint Laurent, Balenciaga, Stella McCartney, Estée Lauder and Uniqlo attending the show for the first time.
In terms of geography, U.S. participants had the most growth, up 42.5 percent versus 2013, followed by Germany, up 12.1 percent, and Poland, up 11.9 percent, a testament to their flourishing economies.
“We really feel the boom from the U.S.,” said the fair’s director Nathalie Depetro, announcing that the U.S. is to be a guest of honor at Mapic’s next edition in November 2015. “U.S. retail is extremely dynamic right now. And what’s more, we see American developers investing heavily in European real estate,” Depetro noted, adding that while Mapic attracts anyone from supermarkets to luxury fashion, there has also been a spike in brands from the entertainment industry, “which is why we have created a leisure area that is supposed to help shopping centers become more sophisticated; we call it ‘retail-tainment,’” the executive explained.
The future of shopping malls and the digital revolution, which is changing the way consumers shop, figured among the most hotly debated topics.
According to a new survey by Cushman & Wakefield, e-commerce is the most significant factor impacting the sector, with both large, multipurpose destinations and more local, smaller convenience centers showing “most potential to withstand or even benefit from e-tailing.”
Midsize schemes are at risk of extinction, the study predicted. The fittest of them are likely to survive in urban areas and with links to public transport.
“The message is clear: Centers need a clear ID and ‘reason to be,’” said David Hutchings, head of EMEA investment strategy at the firm.
Anticipating the imminent changes, real estate giants such as Unibail-Rodamco and Land Securities are selling off midsize assets. “While retaining the same level of investment, over the last five years, we sold off more than 15 retail assets, including Bristol, Sunderland and Dundee, which are too small to make an impact. We prefer to focus on convenience and invest into fewer, better, more-dominant malls,” said Ailish Christian-West, head of portfolio at Land Securities, which has two new projects under construction: the Buchanan Galleries in Glasgow and Westgate in Oxford, a city that has suffered from lack of retail space due to its historic architecture.
In the U.S., where the shopping-center market is largely saturated, developers are spending big on existing capital.
“Most of our stores were built in the Fifties and Sixties. Today, you don’t need a store this big. We are downsizing,” said Alan Shaw, vice president of real estate leasing and development at Sears Holdings, which encompasses Sears and Kmart.
Alan Barocas, senior executive vice president of mall leasing at General Growth Properties, meanwhile, revealed plans to repurpose $2.3 billion dollars up to 2017. “We’ve invested $900 million to date. Customer experience is something we had never heard of 20 years ago, now we have no other choice but to embrace the omnichannel experience,” he said, quoting same-day delivery as an example. “Buy a shopping center, hire a manger and see how it goes — that’s over, product sales are down, services are up.”
British group Intu, which owns 18 centers in the U.K. and created a multichannel transactional shopping center on its Web site billed the first of its kind, said since the start of its overhaul efforts — which will cost the group 1.2 billion pounds over the next 10 years — numbers have gone up.
“The rise of e-commerce is an opportunity rather than a threat, people view shopping as a leisure activity rather than a need-driven activity, with a lot of activity in the evening. The trick is how to make customers stay. [The answer] is: Shoppers that eat with us spend two-thirds more, while leisure also brings people from further away,” said Trevor Pereira, Intu’s digital and commercial director.
According to another survey by Cushman & Wakefield, the U.S. remains the largest market by far in shopping-center space and accounts for nearly 67 percent of total gross leasable area tracked, with 618.3 million square meters. Europe is a distant second with 153.8 million square meters of GLA, followed by Asia with 83.9 million square meters.
But the developing economies of Brazil, Russia, India and China are catching up quickly. Through 2016, Asia will lead all other regions in new shopping-center construction, adding more than 53.3 million square meters to its inventory compared to only 11.2 million square meters for the U.S., its closest competitor.
They will be concentrated largely in China and India.
Recognizing the trend, Mapic said it would launch a new retail real estate trade show in China connecting international and regional retail brands with Chinese shopping mall owners and developers. The first edition is slated to run from June 11 to 12, 2015 at the InterContinental Hotel in Shanghai.
“The market is huge. They need our know-how and in turn, we can learn digital from the Chinese, which is something they do much better,” said Depetro, referring to the fact that in China people can shop for products via large LED screens while waiting for the subway, for instance.
A new study presented by CBRE, the commercial real estate services and investment firm, has found that 49 percent of consumers in China use a smartphone for purchases. Globally, 75 percent look for specific items online, while 42 percent rely on social networking sites for product feedback.
On average, every three weeks they buy online and collect products in-store.
“Click and collect is going up exponentially,” said John Scott, head of international business development at British department store chain Debenhams. “This means in the future we will need less space for direct retail and more space for storage.”
He added that one in five consumers picking up their purchases do extra shopping at the physical store, which eventually creates a great opportunity to increase in-store revenue.
Thor Equities and GGP are among those that see the new trend as a solid business opportunity. “We are at the initial stages of putting a team together and are seeking out online retailers to open brick-and-mortar,” said GGP’s Barocas, calling it “a great vehicle for growth,” while Thor Equities, a specialist in high-street retail, is said to be holding talks with Net-a-porter.
Just one question remains: where?
Location is still everything and can make or break a brand’s footprint expansion. “There’s kind of a bidding war for opportunities among high street guys. They would sacrifice three or four units in the suburban mall environments in exchange for one unit that’s experiential and perfectly placed to capture the masses,“ said Greg Kirsch, executive managing director of national retail advisory at Newmark Grubb Knight Frank. “The luxury retailers are much more selective, willing to pass on opportunities.”
But it’s not easy to build new high streets, Kirsch said. Eventually this will mean that rents will go up, especially in the U.S. — seen by foreign retailers as a promised land: “It’s kind of that safe harbor of 350 million people with disposable income, a very stable business environment that’s welcoming to inbound businesses, and it’s not just Europeans that see opportunity in the States — it’s the Asians, too. If we have a really solid holiday season, I expect rents to go up another 10 to 15 percent in the next year in the high streets.”
Kirsch forecasts that South America is next in line. “Those are hugely emerging markets, not necessarily Brazil — that’s pretty much done, but Mexico, Chile and Argentina. We think that’s the next hot spot. We just acquired a group of eight brokers in Mexico City where there’s a lot of dollars being spent,” he said.
As gateway cities in the U.S. are crowding up, Christopher Conlon, executive vice president and chief operating officer of Acadia, is betting his money on places like Savannah. “We just bought 24 buildings on one street in downtown Savannah. It’s got beautifully preserved architecture and tremendous tourism. When you think about New York and Miami — a lot of their success is from tourism. So when we hear 12 million visitors, we pay attention. There’s also great dining experiences and the Savannah College of Art and Design with lots of international students. What Savannah doesn’t have is shopping. We think it’s a diamond in the rough.”
Conlon said he came to Mapic to connect with international players, especially “the cool retailers,” whose presence makes the fair unique.
“Savannah is not a $3,000-per square-foot market, it’s a market whose rents are $40 to $80 a foot depending on size and entry point. So it’s a relatively low-risk, low-cost try for a retailer who’s looking for both and running out of areas to grow it. There aren’t many new malls being built or new specialty centers, maybe we can present a new city that’s been off the grid a little bit.”
“Off the grid” was a popular word on the lips of developers — who are increasingly using entertainment and architecture to make their real estate more attractive.
“We want to make sure we never become a shopping center,” explained Joyce Gallego, vice president of leasing at the budding Miami Design District, calling the mixed-use project “a neighborhood” instead. “Shopping centers are boring, there is nothing unique about them, people want to experience something different, have a street scene. We went for architecture to ensure that feeling.”
Unibail-Rodamco’s new retail adventure in Cagnes-sur-Mer on the French Riviera, due to open in the fall, coined a new term altogether: “lifestyle mall,” complete with an art curator said to pick outdoor sculptures for its vast green areas.
Add a casino, a concert stadium, ski slopes, ballrooms, aquariums — and perhaps a replica of the Eiffel Tower to the equation, as is the case with Shoppes at Parisian in Macao, an integrated resort scheduled to open in 2015.
The $20 billion complex is already 90 percent leased, according to David Sylvester, senior vice president of retail at Las Vegas Sands Corp., which is in charge of the nascent giant.
“Macao is the hottest market right now, so everybody’s jumping at it,” he said, adding that the malls there rank as the most productive in the world, with average sales of $5,500 per square foot. “Put that into context: The second highest per-square-foot mall is Bal Harbour in Miami, and I think it does about $3,500 per square foot.”
The key driver is — again — mainland China, accounting for 80 percent of customers. “For a lot of them, this is as close as they’re going to get to the Eiffel Tower. They really light up with the whole thing.”