Transformative innovations for shopping centres

Narellan-Town-CentreWhy do shopping centres struggle with innovation so much?

Over the years I have made many proposals and floated many ideas with clients and employers. I have had many bad ideas, but I have also had many ideas that were simply ahead of their time.

Ideas have an extraordinarily difficult path to adoption; what with politics, resources and risk to consider.

The diagram below illustrates the two types of innovation. Both are desirable, but only one is critically necessary. Implementing truly transformative innovations is harder by an order of magnitude. Simple, transitional innovations are necessary, but they don’t transform a business to make it sustainable in the long run. For instance, it is important to implement recycling programs, install charging stations for EVs, but these won’t help ensure your future. Transitional innovations are necessary, but not sufficient.

innovation-transformation-graph

 

The problem, as it is with so many strategic insights, is how to actually, practically make it happen. I think I have solved that riddle for shopping centres. The framework below articulates the four key elements of the shopping centre’s success. The investors (representing the providers of capital), the actual bricks and mortar place, the shopping community (patrons) and the merchants that are the primary attractions.

Transformative innovation happens when you succeed in introducing a change that involves and benefits all four of these elements of the shopping centre mix. When you integrate changes, which to some extent combines and involves these four elements, then you have innovation that transforms.

shopping-centre-graph

 

 

As an aside, for the sake of completeness and transparency, it should be pointed out that simply having an idea is a very small part of the process. The biggest challenge is the cultural shift that creates a climate receptive to innovative ideas. This environment and having a structure that enables the execution of innovations are prerequisites. But this is not a book about change management per se, so I will stick to the knitting.

The list below are all ideas (some more than a decade old) that seem to me to still have merit and all of them integrates to a greater or lesser extent these elements of the mix.

  1. A fund for fitout contributions:

Retailers in the current climate (2017 and foreseeable future) rely heavily on landlord funded store development.

Innovation: Create a fitout fund.

That is, a separate fund (with a dedicated Fund Manager) that takes equity but with a payback structure for the retailers, instead of providing lease incentives with no return. Instead of funding failing business models, invest in new concepts. Make it compulsory for a portion of the funds to be spent on professional advice (design, marketing, legal, financial, operational etc) that improves the risk profile of the fund.

  1. Casual incubator:

Casual Mall Leasing and later Pop-Up Retail has long been part of the shopping centre scene. Landlords saw these as revenue opportunities – occupying common area space and generating incremental income. It was largely a response to the luxury of high occupancy rates. Many in the industry saw this as an opportunity to ‘incubate’ future tenants. But for a variety of reasons that hardly ever materialised.

A few entrepreneurial types tried things like 100 Squared. Scentre recently launched an incubator at Chermside which I have not seen personally, but is possibly the type of innovation that could be transformative.

Innovation: Design and create a dedicated co-op space.

Much like offices have become co-working spaces where a bunch of rotating and fluctuating temporal concepts can trial themselves, the key to making it a sustainable option is to:

(a) support it with professional advice to incoming trial concepts

(b) make it permanently available

(c) prioritise the concepts that can scale for shopping centres and

(d) allocate space based on potential (not first movers only) and (e) constant rotation to keep customers coming back anew.

The key feature of something like this would require the Landlord to NOT be cynical.

 

landlord-cycle-graph

 

A real incubator must be applied the full lifecycle of new retail concepts – as per above diagram: Identify, source, screen, onboard, support, adapt, grow and iterate.

One can brainstorm various innovations once you have a specific stage of the cycle to focus on. Examples of innovations that could be applied to the various stages are:

Online academy: Create a dedicated website for any business interested in opening in a centre to (a) learn how to do it (b) step them through actually doing it. It may even be a joint-initiative of multiple landlords, but the idea is that making a success in a shopping centre has its own unique requirements. It is not about teaching people how to retail (only) but how to do business and to ‘stress-test’ their ideas and give them an opportunity to bounce ideas off the facilitators (independently).

Retail development support office: For the duration of every retail development, create a retailer academy/forum for any business (comprising fewer than three stores) who is signed up to a deal. Offer the newbies guided, independent advice to help plan their business, design and configure it, finance it and launch it. A simple thing like navigating the recruitment process on intuition is fraught with danger and getting the wrong people on the wrong agreements at the start of the new retail business could easily be fatal (at worst) or just result in such a poor customer experience, post launch that they are on struggle street to retail customer interest. How often have you gone into a store for the first time, had a bad experience, and wrote that store/brand off never to return?

Screen for success: We created a subsidiary company to act as an external validation agency in this space, looking to de-risk new retailers and assignees though better, professional assessment and validation. This mitigates risk and secures any potential landlord investment. This intervention can also be geared to guide the retailer – through the business planning process – to help get them off to a better start, particularly those who are not familiar with the constraints of trading in a centre.

  1. Create an ‘agile lease’:

We don’t envisage that leases will disappear altogether. But introducing the necessary flexibility to empower retailer-driven innovation is the notion of an agile lease.

4. Innovation: Change the standard specialty lease to an agile lease

This is a lease where the key commercial terms (duration, cost, usage clause etc) are contained on ONE sheet, which then can be changed by sitting down in a single meeting or phone call and counter-signed and legally take effect. If new concepts can grow and establish themselves without the constraints and costs of, for instance, trading hours and with the guaranteed ability to vary the usage to fine-tune the offer to see what works, their chances of success are greatly enhanced.

There are strong socio-cultural trends that suggest that the value of these legal agreements are being eroded significantly anyway. In fact, the recent Sumo Salad/Scentre debacle points to the absolute necessity.

5. Every centre a mixed-use centre:

Creating a TRUE mixed-use centre would mean incorporating many of the following uses – possibly even all of the areas below.

Innovation: Multiplicity of use

  • Retail
  • Public Domain/ Community
  • Entertainment
  • Office
  • Residential
  • Alternative
  • Tourism

This is in essence a risk diversification strategy.

Start by adding maximum residential living to the centre. That is, to use an Aussie social convention a matter of BYO Customers. This is obviously not necessarily easy or applicable in every instance, but on the whole, most retail centres are in prime real estate locations with excellent infrastructure as well as often with community facilities.

It may require serious, long-term lobbying to overcome zoning issues, height limits and what not, but political opinion aside, I find it difficult to visualise any shopping centre that could not accommodate hundreds, maybe thousands of living units above it.

Great use of space, roads/parking etc can be expanded (possibly going underground) more easily than entirely new land to be found somewhere else. The accommodation could be for residents, holiday or even student accommodation.

Alternative use could include spaces often found in event/convention spaces. I can imagine ‘Launchpads’ = space in the shopping centre for experiences. Shops selling yoga clothes can use this space to run a yoga class once a week and promote their clothes. These are spaces to learn, explore and meet.

Ensure some spaces are large, flexible and multi-purpose. For a shopping centre to be a true marketplace it will  need to cater for a events (we lost our centre courts to kiosks).

These spaces should be accessible AFTER hours. The idea is to work towards a mix of activities and an offer that extends the trading period of a shopping centre. In a world of shift work, remote work, permanent casual work, the gig economy, the idea of a 9-5 centre will become a quaint relic. The town square is not only applicable to large regional centres with external space to use; it can be replicated in every centre, and it starts by reclaiming the old centre court.

Ecologic-building-with-plants--65340859

An environment devoid of nature may have a negative effect

Placemaking is gaining traction in shopping centres. The argument for this is easy, the payoff is a bit harder. But if shopping centres are to function as public spaces, it has consider topics such as biophilia, which postulates an environment devoid of nature may have a negative effect, with a potentially undesirable impact on health or quality of life. Malls have the social obligation to manage these spaces differently.

Placemaking relies on high quality common areas, a blurred line between public and private spaces, and the integration of traditional and non-traditional retail uses like local government offices, community centres, medical, childcare and education services.

It is critical that malls be about much more than stores. We see the mix of tenant/public space shifting from the current 70/30 to a significantly different split. When this happens, these expanded public spaces will need to be planned and programed over the year much like an exhibition. They will be managed more like content and media, instead of real estate.

Mckinsey suggests that malls must become like retailers, isolate and quantify the consumer touch points that are most responsible for driving satisfaction.

This means applying recent retail innovations like customer journey mapping in the mall, tracking it and using the information to improve the experience.

  1. Crack the code:

Any landlord of any material significance could create a crack team of retail professionals that can scour the world and create a new concept. Landlords have capital, data that will aid insight and decision-making. It will likely be a franchise concept, and as soon as it attains critical mass, it can be sold.

It is really Landlords adopting a BYO attitude to retail mix. Landlords should:

  • get better at judging a retail talent
  • have retail teams working on partnership with retailer
  • be willing to perhaps operate retail shops themselves

When you are funding the retail concept through fitout contributions anyway, you might as well have more control. Mckinsey says that malls (should) see themselves as customer-facing providers of shoppable entertainment. For example, the Menaissance: men are taking the lead in spending.

  1. Toe-prints:

I borrowed this term from Liz Holland, even though our use is a bit different. It is about exploring the multi-channel crossover opportunities.

For example, provide space for customers/patrons to:

  • see and try the products for e-commerce retailers (shared space).
  • pick online orders up
  • provide showroom spaces

These types of opportunities are designed to make the shopping mall a place where non-traditional retailers (like e-commerce merchants) can get a micro-footprint (or a toeprint as Liz calls it) in an environment before they are ready to commit to bigger, longer-term arrangements.

These examples are not an exhaustive list – you will see that it involves all four elements of the shopping centre mix to some extent, so I believe it has the potential to be TRANSFORMATIVE.

Dennis Price: Co-Founder at ganador.com.au and yearone.solutions – can be reached on 0411030436.

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