New Developments Seek Customers
By Bernice Hurst, Managing
Partner, Fine Food Network
Most everyone connected
with retail is familiar with the mantra, “location, location, location.” Equally,
they will know that stores cannot open overnight. Sometimes, as with Westfield,
which opened in London on October 31, the planning and preparation can
last for a decade. From twinkle in the eye to twinkling lights to greet
eager customers, the mall’s potential for success has been colored by changes
in the economy, tightened purse strings and even concerns about the cost
of getting from home to store and back.
Granted, Westfield has
invested in both parking spaces and enhanced public transport. It is covered
and offers not only every retail chain a penny-counting shopper could want
but also the highest end stores even the mega-rich could want. There are
dozens of places to eat, drink and relax. It is a place to shop and to
socialize. It was intended to be a consumer mecca and,
if all things were equal, it could meet that objective. Westfield’s 1.6
million square feet of space contains 265 stores, a 14-screen cinema, fitness
center and some 49 cafes, bars and restaurants. An estimated £1.7 billion
($2.72bn) was spent in its creation.
The parents of several
tenants reported falls in sales and profits in the weeks leading up to
opening. But Mary Portas, a spokesperson and
consultant for Westfield, told The Guardian’s John Harris that retailers
have to focus on being upbeat. While it may not be the ideal time to open,
she believes Westfield will provide people with a lift that “you don’t
really get elsewhere. And in times like these, I want a bit of joy. Don’t
you?” Westfield’s senior leasing executive, Keith Mabbett,
believes that the 98 percent occupancy achieved means that the future looks
good. While acknowledging the downturn, he insists that longevity means
they “can ride the storms” and has offered generous terms to
help (and to avoid shoppers seeing empty spaces?).
This and other recent
openings have triggered debates about whether target audiences are local
people or those coming from other, perhaps more affluent, areas. Gridlock vs. regeneration perhaps? But these things
take time, the recession will eventually end and stores will need to open
and make themselves available to customers. Maybe it really is a question
of building it and the people will come. Although that doesn’t answer any
questions about whether or not they will spend.
Discussion questions:
What particular challenges do new retail developments face during difficult
times? What factors should determine whether a retailer should move into
a new development?
The US is overstored. Opening stores for the sake of opening them does not make sense. More consumers are purchasing online and having items delivered to their homes or to a local store. When items are delivered to a local store, consumers do not necessarily purchase more items as they pick up their orders.
The real question is what role does real estate have in a retail outlet’s future? Real estate is inexpensive to purchase right now but could become an albatross if it is in the wrong location or if more consumers stay away from retail outlets. If real estate has a significant role in future plans and if the right location is available, the prices are right now.
Even before the economy soured, St. Louis was badly overbuilt with commercial space, at least as far as I could see. There’s a brand-new center in a very centrally-situated part of the county that, more than a year after completion, only looks about 40% full–and that may be generous.
I hope the London Westfield guy is right about his market–I suspect that, given the cost of real estate there, it would be harder for developers to overbuild the way they can here.
After all, this is St. Louis County, the land of nearly 100 separate municipalities: land from previously unsuccessful developments can go for a song, and municipalities fight nearly to the death for the right to offer tax incentives to developers that will empty their coffers of desperately needed revenue for a decade or more. (Hint: Watch your speedometer.)
But here’s my real point. I’m not sure bricks-and-mortar shopping is going to make the huge comeback some folks are counting on.
Online shopping continues to grow, and it makes so much more sense in so many categories: why would we get in the car and go to a store to buy the sorts of basic items that show up on our lists repeatedly, where we know the exact size, shape, specs, and so on?
Those items can range from office supplies to athletic socks to tennis balls to…the sky’s the limit. I can even imagine going to a store to buy a new pair of tennis shoes (for actual tennis) then running home to order three more pairs of the same model online. Voila! No more playing on worn-out shoes three months too long for lack of time to get back in the store.
So I think it’s absolutely on target to say that the physical shopping centers that make it are going to need to be something special–a destination that’s about the experience as well as the merchandise.
The centers (and their tenants) also need to make sure they’re integrating their online channels into the mix–now and into the future, to:
• Market heavily online for acquisition, retention and loyalty.
• Leverage the multichannel approach to driving sales, where a customer might see something online and then head for the center because she has to have it NOW. Yes, that does mean having all the merch in the stores online as well, which does mean having a few bodies dedicated to that full-time. But they’ll pay for themselves in incremental sales, particularly if the centers market the feature properly.
• Engage customers with social tools. Do this right, and really listen to what they’re saying, and stores could merchandise a lot more effectively–maybe cutting markdowns to a fraction of what they are now.
Example: Here’s my pet peeve of the 2007 and 2008 fall fashion seasons: All the pants in stores are now 3-4 inches longer than they were in previous years, and it started with, as far as I know, Coldwater Creek last fall. Now it’s spread to Talbots. In fact, they’re so long I can’t even buy a heeled shoe high enough to wear without hemming the pants. Now, did all their customers suddenly grow five inches? I bet, if these retailers had online forums, and a merchandiser had been listening to the conversations, nobody would have gotten the bright idea that an average–not tall–inseam should be 33-34 inches.
I call out Coldwater Creek because someone told me–it might not be true–that they had a training session in Summer 2007 where they said the target audience was nurses and teachers (presumably over age 45, based on the overall styling of the merch)–and they expected them to be wearing four- to five-inch heels. I ask you: On what planet? Again, a little web 2.0 would have gone a long way to averting that misperception.
At any rate, I think it’s going to take a loooong time to fill up all the overbuilt retail space in this part of the country, even after the markets find a new way up. But smart marketing that leverages the online channel will help–not hurt.
What challenge does a new development face right now?
B-A-N-K-R-U-P-T-C-Y. And if it’s big enough, it has the power to send the whole company down with it.
I’ve never been very fond of Westfield’s strategy of “branding” malls; they’re similar enough without rubbing in the point. And I don’t really know enough about their business acumen to comment intelligently, but more than 1000 GBP/square foot (assuming Ms. Hurst’s figures are correct) seems awfully expensive…even in good times I don’t see how it would be profitable.
98% occupancy rate? That’s what impresses me most. Whatever they did to achieve that, they deserve kudos.
Tough times or not, I think it really hurts a mall operators’ image when they have a lot of vacancies, especially when they do a bad job of covering up the space – as in putting plywood over the windows. Clean bathrooms, clean parking areas, good security, and minimal store vacancies all seem like the price of admission if you want to bring in high-end shoppers, and maybe any shoppers at all.
When it comes to malls, accessibility and customer atmosphere is what defines them. Malls have really taken an upscale turn to differentiate themselves from the standard big-box anchored power center. Adding concierge type services and credit card labeled mall gift cards takes the experience that much more upscale. Westfield in the US has done a good job of mixing up different categories under one roof.
One question mall managers need to ask themselves is whether a certain chain of stores will take away from the mall image. Some of the local malls here in Toronto have gone entirely upscale and have booted out discount chains even only accepting upscale food outlets for their food courts. In this day and age, I would say beggars can’t be choosers, but we must also look ahead and know that times will not always be bad. Do you want a dollar store next to a Coach or Tiffany’s?
I noted this week that the developer of Natick Collection, an upscale mall outside Boston which recently opened a high-end addition featuring Nordstrom’s and Neiman-Marcus, is expected to file for bankruptcy soon. It’s been widely reported that the new addition has performed far below expectations.
This is not a good time to be a retail developer of any kind. They are sailing into a hurricane-force head wind. There are likely to be record vacancies after the first of the year. There are several projects I’m directly aware of that clearly appear to be struggling with securing both tenants and financing. There’s not likely to be much retail expansion for the foreseeable future, but it will certainly be a buyer’s market.
The concept of “Build it and they will come” is risky. It is a phrase we warn against. Without consumers demanding something new, this is a concept that typically fails… especially in these times when people are very conscious of what they are spending money on.