DESPITE subdued growth by 'anchor' stores in shopping centres during the 2014-2015 financial year (FY15), the changing mix in centres is contributing to specialty shop outperformance, according to leading property and planning consultants, Urbis.
Traditional 'anchor' stores have been affected by 'cannibalisation' from new store openings, as well as intense price competition and low inflation.
During FY15, Coles, Woolworths and ALDI opened 82 new supermarkets around Australia. Kmart, Target and Big W also opened 24 new discount department stores. This level of new store openings in an otherwise low growth and low inflation market has resulted in supermarkets and discount department stores in shopping centres having a quiet year in terms of top line revenue growth.
In releasing the Urbis Shopping Centre Benchmarks 2015, Urbis Director of Economics and Market Research, Ian Shimmin, says that the strong performance of specialties, the continuing evolution of centres to include more non-retail uses, and the growth of mini-major stores (stores in excess of 400 sqm) have clearly been the main themes affecting shopping centres this year.
"The stores typically referred to as 'anchors', because they have traditionally driven customer traffic flow in shopping centres, have stagnated. Compounding this trend is the fact that department stores, which have been the mainstay of the large regional centres, have grown by less than 0.5% overall," said Mr Shimmin.
Despite this, shopping centres have continued to be important community focal points for a range of functions, not just shopping. They are broadening their mix of uses by including libraries, gyms, offices, personal and business services, as well as cinemas. Fine tuning the tenancy mix in centres to best suit the needs of the market, and to deal with change, are hallmarks of Australian shopping centre management.
In the larger centres in particular, the number of customers coming through has outstripped population growth, which clearly suggests that they are increasing in relevance. The tide continues to change and centres have continued to evolve, so much so that specialty stores (i.e. including those most affected by growth in online sales and competition from the majors) are adapting and winning.
"We're seeing far more attention to shopfront design, visual merchandising and product differentiation in the better centres in Australia now, and consumers are responding positively," said Mr Shimmin.
Regional shopping centres and CBD centres have been the standout asset classes in FY15, with specialty stores in these centres increasing by 4.3% and 4.4% respectively, on a like-for-like basis.
Mr Shimmin reports that across all shopping centre classes, specialty store growth has outstripped the growth recorded by the majors.
"This year, we've also seen specialty growth in some surprising categories. For example, books are making a comeback in regional centres, and music/video/games stores are one of the main growth categories in both regional and sub-regional centres. These are categories previously impacted by online sales," said Mr Shimmin.
Top specialty growth categories
Entertainment and food are increasingly important elements of a successful shopping centre. In the large regional centres it is the food and beverage outlets that are really kicking goals, up 5.2%.
"There is a clear and consistent trend towards more and better food and beverage in shopping centres. Centres such as Westfield Miranda in Sydney, Westfield Garden City in Brisbane, Watergardens in Melbourne, the new Eastland in Melbourne and Cockburn Gateway in Perth are examples of the trend towards highly social dining precincts in shopping centres rather than food courts," said Mr Shimmin.
Despite the rise of Foxtel, Netflix, Stan and other streaming services, cinema box office revenue is up approximately 10% in regional shopping centres and 6% in sub-regional centres. The cinema offer is changing, and so is the profile of the customer.
"In the years ahead we are likely to see more significant changes in cinemas, such as better seating and a more quality food and beverage, in particular. Village's Gold Class venues and the new model at Hoyts Eastland are examples of the way forward in cinema-based entertainment," said Mr Shimmin.
Shopping centres are also likely to introduce more for families going forward. Play spaces, interactive mall games, family friendly events and facilities, and a broader range of entertainment options, even edutainment, are all on the horizon. Chadstone will soon house Australia's first Legoland, and another edutainment player, Kidzania, is known to be interested in Australia.
Shopping centre owners are clearly in tune with the importance of maintaining sustainable rent levels. Regional centre specialty shop rents have stabilised further, with growth at a modest 1.8%. Occupancy cost ratios (rent as a proportion of turnover) declined for the second year in a row, from 18.2% in FY13 to 17.3% in FY15, as some centre owners rebalance occupancy costs to account for the prolonged low growth environment. This was due to negative rental reversions at some centres, coupled with generally higher specialty shop turnover productivity (+4.3%). In other words, turnover growth has exceeded growth in rents.
David Jones' new approach, which is well and truly on display at the new Eastland Centre in Melbourne, as well as Pepkor's deal to sell Debenhams' merchandise through Harris Scarfe stores, are signs that Australia's department stores may finally be re-invigorated.
"We're also about to see the outcomes of a wave of development activity, especially in regional centres, and this will introduce new concepts and advances in the design of centres, as well as new technology, all of which will deliver the best possible customer experience. Around 22% of regional centres are currently undergoing some form of development activity, and another 48% have plans in the pipeline," said Mr Shimmin.
More information about the Urbis Shopping Centre Benchmarks 2015 is available from the Urbis website at <http://www.urbis.com.au/shopping-centre-benchmarks-2015>.
Note from Urbanalyst: The above article is sourced directly from the document and/or accompanying documentation. Aside from minor editorial modifications, the information is presented as-is.
Photo 1: Pitt Street, Sydney, with Westfield Sydney in background / Paolo Rosa / Licensed under Creative Commons BY-NC-ND 2.0.
Photo 2: Highpoint Shopping Centre, Maribyrnong, Melbourne / Colt Group / Licensed under Creative Commons BY-NC-ND 2.0.