Franchising and the new shopping centre

mall tenant

The reinvention of the shopping centre will require a new tenancy mix.

Shopping centres worldwide are being forced to undergo change at an accelerating rate, and it’s changing the pattern of demand for franchise businesses. Of course, shopping centres have always evolved in the past, but change has tended to be gradual. For example, the increasing importance of junior anchors, the influence of new urbanism on design, and the declining importance of multi-level department stores.

The difference now is that change is being driven by technological disruption, which has proven to be a much more demanding taskmaster than, say, demographics or urban design have been in the past. So demanding, in fact, that retail professionals now talk about the transformation of shopping centres with terms like ‘reinventing’ and ‘reimagining’ – words that for once are probably as apt as they are boring.

Old habits die hard

Reinvention of shopping centres involves a number of different elements, which differ in emphasis from one centre to another, depending on its particular circumstances. In many cases, it revolves heavily around a more service-focused tenant mix that connects better with the everyday needs of local residents.

This implies that the kinds of franchises that have been crucial to shopping centre growth in the past – though still maintaining a role – will be of declining importance. Alongside them will come an increasing number of franchise businesses that are consistent with the new role of the shopping centre. Some of these services involve tenants that shopping centre operators have eschewed in the past, preferring instead to go for retailers that sold ‘stuff’. Old habits are hard to break, but break they will, if the shopping centre industry is to continue thriving.

Say farewell to the old food court

To understand the change, think of the old-style shopping centre food court, replete with fast food options that are among the most important franchises in the world: McDonald’s, KFC, Subway, and so on. According to the Entrepreneur Top Global Ranking for franchises, seven of the top 10 and 14 of the top 30 international franchises were fast food businesses in 2017. And all of them are commonly found in shopping centre food courts the world over.

The food court fits well into the old shopping centre model when the primary objective of coming to the centre – if not the only one – was to actually shop. The fast food was exactly that –  a crude utilitarian device, like a petrol pump, that provided a quick opportunity to refuel for a longer shopping trip.

What kind of shopping centre does this old-style food court attach to? Such shopping centres have some salient characteristics that no longer serve to endear them to the general public. They are typically giant, inward-looking shoeboxes that make no attempt to integrate themselves with their surroundings. They are anchored by department stores, discount department stores and supermarkets that duplicate each other in terms of products and sometimes in terms of brands. And their specialty store mix is dominated by apparel and accessories retail.

The food court hangs off of these core merchandise offerings like air freshener off a car mirror, with its familiar experience of super-caloried food and plastic forks that break on the first incision, sending white plastic parts cartwheeling entertainingly through space.

New kids on the block

The reinvented shopping centre must offer much more than this kind of experience. Franchises in different kinds of businesses are set to play a major role in making this happen, since the tenants that drove shopping centre growth in the past are slimming down drastically.

Fung Global Retail and Technology, a research unit of global retail giant the Fung Group, projects that chain store closings in the US alone will rise 361 per cent above closings for 2016. Most of the losses are coming from apparel and accessories specialty, department stores and electronics.

Although few of the retailers affected by these closings involve a lot of franchise stores, a significant component of the new tenant mix will be.

Concepts that all fit well with the franchising model that are assuming increasing importance are niche and generalist fitness concepts, childhood education, childcare, aged/medical care, fast casual food, digital repair, tax/financial services and employment services.

Some aspects of the transformation of shopping centres will not be so accommodating of the franchise model. For example, shopping centre operators will be looking to include more elements that can differentiate them from their competitors. One of the things that is hurting them badly is sameness and from a leasing perspective, this suggests the need for greater focus on nurturing tenants that are not replicated elsewhere.

The spread of boilerplate franchises not only doesn’t help with that, it can clearly make the problem worse. Fresh concepts quickly become stale when they are accessible everywhere. Moreover, there is a natural quality-control problem that kicks in as a franchise grows, since the most favourable locations are often the ones that are taken first. And, worse still from a branding perspective, the least able franchise operators – the ‘B’ teams – buy into the marginal locations.

So while franchised operations can continue being an effective way for the ‘reinvented’ shopping centre to usefully fill space, they are still subject to disadvantages, particularly in non-fast food categories where control of operations and product are looser than in your typical McDonalds. The routine failure of clothing retail franchises in Australia is a classic illustration of what can happen.

Services, though, have a better track record, and franchises in services businesses promise to be a big player as shopping centres look to transform themselves for the future.

Michael Baker is a Sydney-based retail consultant and former head of research at the International Council of Shopping Centers. [email protected]

 

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