Why the world of retail is changing
Article4 Minutes13 September 2018
In our analysis of the changing face of retail, our team of experts look at longer-term social trends and explain how they are changing the way that we shop and visit shopping malls.
Q. What changes are impacting commercial real estate?
Commercial real estate is going through rapid change as people become consumers of space, not just of products and services.
This is being driven by three macro trends that are transforming the way societies utilise space:
Urbanisation - Between 75-80% of the world’s population will live in cities within the next 30 years, according to studies by the UN and IMF1. This will create accessibility issues when pressure on transport infrastructure increases as people move closer to work to reduce commute times. The implication is that building design will become more agile and sustainable. More mixed-use buildings are being completed; these are already common in major Asian commercial centres but are starting to appear more in Australia. Previously an office block might have ground-floor retail space, however new designs increasingly include hotels, apartments, leisure facilities and co-working spaces.
Flexible working - The second trend is the changing nature of office work. Baby boomers entered the workforce at a time when a closed individual office provided solitude and status. By the time they reached management positions, open plan working was the norm. Now this demographic sets the tone for businesses with a focus switching to flexible working, home working and co-working spaces. A more agile approach aligns well with millennials who embrace hierarchy and structure less than previous generations, and with employees who place a high priority on family life. This shift coincides with a period when office rental levels are at historic highs in some Australian cities.
Technology - The final trend driving change is a consumer’s higher expectations of the accessibility of instant and relevant information via mobile technology. Retail and other commercial centres in Australia have traditionally not managed customer information well. However, increased focus is expected on integrating the analysis of data into operating models.
Q. What shops and other facilities do shoppers expect to see in centres?
Customers want to do more than just buy a product when they visit a shopping centre. Now, they expect a space in which they can connect with friends and family; providing a food court will no longer suffice. Successful shopping centres now offer a mix of higher-range casual dining venues, trendy bars and cinema complexes.
Families are attracted by children’s play areas and high-quality baby changing facilities, which may also extend to childcare and educational facilities. Fitness centres, spas, wellness outlets and medical services drive further footfall.
The unifying feature is that consumers are more likely to be attracted to sources of value that cannot easily be reproduced and disrupted online. This includes the humble and longer-established dry cleaner, mobile phone repair or key-cutting kiosks. Once established as a destination that successfully attracts the target demographic, a centre and its retail tenants are much better positioned to profitably transact physical goods.
Consumers are demanding an experience that is exciting or surprising and based upon a humanistic element.
Q. When do people shop online and when do they want to visit a shopping centre?
For most consumers in Australia this is not an either/or question, as people transact in both channels at different times. However, the experience for the online or physical shopper is likely to determine whether the market proposition is a success.
Commentary on retail trends sometimes suggests that ecommerce is a recent evolution, however online shopping sites have been transacting in Australia for 20 years. During this time, there has been no fall in annual mall visits. The challenge for those in the wider retail environment is to persuade mall visitors to part with their money.
The Australian market is structured in a way that scope for product differentiation is limited, meaning the quality and nature of the experience represents the point of difference. To attract visitors, a shopping centre must be seen as a place of gathering and a place of commerce. It must be about an experience that is valued beyond the sum of transactions, in which the opening of wallets is a mere by-product of an engaging and social experience.
1 United Nations, 68% of the world population projected to live in urban areas by 2050, says UN
This article (“Material”) has been prepared by Dexus Asset Management Limited (ACN 080 674 479, AFSL No. 237500) (“DXAM”), the responsible entity and issuer of the financial products of insert name of APN AREIT Fund mentioned in this Material. DXAM is a wholly owned subsidiary of Dexus (ASX: DXS).
Information in this Material is current as at date of publish (unless otherwise indicated), is for general information purposes only, does not constitute financial product advice and does not purport to contain all information necessary for making an investment decision. It is provided on the basis that the recipient will be responsible for assessing their own financial situation, investment objectives and particular needs. Before deciding to acquire or to continue to hold a product in any fund mentioned in this Material, investors should read the relevant product disclosure statement (“PDS”) and target market determination (“TMD”) in full, and seek independent legal, tax and financial advice. The PDS and TMD are available from DXAM, Level 5, 80 Collins Street (South Tower), Melbourne VIC 3000, by visiting www.apnres.com.au or by phoning 1800 996 456. The PDS contains important information about risks, costs and fees (including fees payable to DXAM for managing the fund). Any investment is subject to investment risk, including possible delays in repayment and loss of income and principal invested, and there is no guarantee on the performance of the fund or the return of any capital. This Material does not constitute an offer, invitation, solicitation or recommendation to subscribe for, purchase or sell any financial product, and does not form the basis of any contract or commitment. This Material must not be reproduced or used by any person without DXAM’s prior written consent. This Material is not intended for distribution or use in any jurisdiction where it would be contrary to applicable laws, regulations or directives.
Any forward looking statements, opinions and estimates (including statements of intent) in this Material are based on estimates and assumptions related to future business, economic, market, political, social and other conditions that are inherently subject to significant uncertainties, risks and contingencies, and the assumptions may change at any time without notice. Actual results may differ materially from those predicted or implied by any forward looking statements for a range of reasons. Past performance is not an indication of future performance. The forward looking statements only speak as at the date of this Material, and except as required by law, DXAM disclaims any duty to update them to reflect new developments.
Except as required by law, no representation, assurance, guarantee or warranty, express or implied, is made as to the fairness, authenticity, validity, suitability, reliability, accuracy, completeness or correctness of any information, statement, estimate or opinion, or as to the reasonableness of any assumption, in this Material. By reading or viewing this Material and to the fullest extent permitted by law, the recipient releases Dexus, DXAM, their affiliates, and all of their directors, officers, employees, representatives and advisers from any and all direct, indirect and consequential losses, damages, costs, expenses and liabilities of any kind (“Losses”) arising in connection with any recipient or person acting on or relying on anything contained in or omitted from this Material or any other written or oral information, statement, estimate or opinion, whether or not the Losses arise in connection with any negligence or default of Dexus, DXAM or their affiliates, or otherwise.
Dexus, DXAM and/or their affiliates may have an interest in the financial products, and may earn fees as a result of transactions, mentioned in this Material.