During the 60s shopping centres appeared to be a glimpse of futuristic commerce. These imposing architectural marvels sought to bring the US shopping experience to UK towns.
Out of town shopping centres started appearing on industrial estates where heavy industries were receding from the seventies to the nineties.
There has been a 21st century resurgence of shopping arcades during the past decade in the shape of the Birmingham Bull Ring, the Westfield Centres in Shepherd’s Bush and Stratford in London.
Westfield London Main Atrium
The popularity and plethora of e-commerce sites and changes in consumer behaviour have contrived a precarious future for shopping centres.
This is best illustrated by the recent termination of a $2.8 billion agreement for the purchase of Intu Properties – the shopping centre giant that owns Lakeside in Essex, Metrocentre in Gateshead and Trafford and Arndale Centres in Manchester. The prospective buyer was a consortium controlled by the Peel Group. They blamed “uncertainty around current macreconomic conditions” and “volatility across markets.”
The analyst Nelson Blackley reported in November that over 200 shopping centres in the country were on the brink of closing down.
Richard Lim, the Chief Executive of Retail Economics explains that successful shopping centres will be those that provide the right experience to modern consumers who now wish to be more than mere “shoppers.” He also said that outlets occupying good locations also have a bright future even if they offer plain old “nuts-and-bolt” service.
Mr Lim said that certain flagship centres like Birmingham’s Bullring, Leeds Trinity and Westfield are prospering because they are providing experience in accordance to consumer wants: bowling alleys, cinemas, bars, karaokes, etc. He cautioned that although the retail service is imperative, it is not the exclusive factor behind visitor numbers because western consumers have a plethora of material possessions and now they want something else.
Selfridges at Birmingham Bullring Shopping Centre
Mr Lim also pointed out that certain secondary and tertiary shopping centres are also doing well besides the flagship shopping centres. They have witnessed a decline in retail shopping but continue to thrive owing to their prime location. However, those shopping centres that do not enjoy the privilege of good location will fall prey to the e-commerce cataclysm.
He said that consumer behaviour is not just changing, it is transforming with alarming briskness. Smartphones have made it very convenient to purchase on the go. Growth of the “experience economy” is also having a profound impact.
Millennials have distinct wants compared to the older generations. The emphasis is on experience rather than material possessions: experience that can be shared via social media with friends, family and acquaintances.
Revocation of the Intu agreement triggered a fall in share prices for both Intu and its rival Hammerson. Intu resolved to continue long term investments in its shopping centres while pointing out the difficulties of a “challenging market.”
The Brexit imbroglio will certainly impact the future of shopping centres but the most urgent factor is the increasing predilection of consumers towards experience-centric destinations.
All eyes of the industry are now on the upcoming Christmas season. Graham Parker is the Editor of the “Retail Destination” (the erstwhile “Shopping Centres” industrial news magazine). He said that consumers are migrating towards the bigger shopping centres such as the Trafford Centre and the Bluewater of Kent. While visitor numbers have dropped by up to 3% generally, the decline is only 1% for shopping centres at prime locations. Conventional retail is enduring the impact of online retail, national minimum wage, higher business rate expenses and the battering of the pound by the Brexit impasse which is making imports dearer. The impending Christmas season will offer a deep insight into customer preferences and behaviour, so all shopping centres and retail outlets will watch with bated breath.
Some analysts argue that online retail is not a death knell for bricks and mortar stores and shopping centres; rather, it offers more opportunities. Shopping centres will have to make profound changes in their business model not just to survive but also to increase profitability. In fact, astute businesses can prosper from the rising tide of the experience economy. This is something that online rivals cannot leverage.
Beating online retailers on the basis of price and convenience is an uphill task and perhaps an exercise in futility due to the intrinsic advantages that online stores enjoy in the form of greatly reduced expenses and investments. It is much better for conventional retailers to compete in the area where they have the inherent upper hand: enhancing customer experience through superior client engagement.
McKinsey, the global management consulting company reports that consumer expenditure on experience industries such as travel companies, restaurants, amusement parks and sporting venues has increased four times more than the increase of expenditure on goods. The consultancy reports three main factors driving the experience phenomenon: the fear of missing out on an enjoyable event, personal preferences and the perceived ensuing happiness.
Multinational companies are already leveraging the rising tide of the experience economy to increase profitability. Sephora, the multinational chain offering personal care and beauty products is not just selling its products; instead, it is also allowing consumers to dabble with its products in-store. This experience is definitely a much better alternative than simply purchasing online. It provides a powerful motivation to visit their store in lieu of e-commerce platforms. The company provides beauty classes and services and the “Color IQ” matching device which scans the skin surface to designate a “Color IQ” number that helps to find matching products like foundations, concealers, lipsticks, etc. It orchestrates Beauty Tip Workshops using the “Teach, Inspire, Play” concept to provide hands-on training and product experience. The company has also provided a “Digital Makeover Guide” which is its first ever digital take home product. It contains an interactive facial chart which stores details about the services that the client used as well as personalized recommendations for application tips and the better use of products.