If Amazon killed bookstores and Netflix killed video rentals, UberEats and Deliveroo may be stabbing shopping centres in the back as they attempt to protect themselves against the onslaught of e-commerce.
Over the past few years, the likes of Westfield, Mirvac and Vicinity have invested millions of dollars converting their tired old food courts into hipster “dining precincts”, while shifting to an “e-commerce resilient” store mix.
This focus on entertainment and “experiential” retail — think lifestyle services like health and beauty as opposed to traditional staples like books and clothing — was designed to drive foot traffic and encourage shoppers to stay longer.
There’s only one problem — it doesn’t seem to be working.
Australia and New Zealand saw a 15 per cent decline in shopping centre visits in 2018 compared with the previous year, according to a UBS survey of more than 14,000 consumers across 14 Asia-Pacific countries.
While Australian shopping centres still have the highest rates of visitation in the region, typically because each is “anchored” by one or two large supermarkets, UBS described the sharp decline as “unexpected”.
Most worryingly for Australian shopping centre operators, when consumers were asked what they wanted most, dining and services were way down the list compared with in Asia. The one thing Aussies want more than anything? Parking.
Thirty seven per cent of Australian respondents said they wanted better parking facilities, more parking spaces and lower parking cost, while just 25 per cent wanted more services and 24 per cent more dining.
“In Asia with higher population density, shopping precincts are centred around key transport hubs — people are not driving cars in Tokyo to go shopping,” UBS analyst Grant McCasker said at a roundtable event on Thursday.
“All these landlords have been investing in entertainment, leisure, dining precincts, that’s underwritten 90 per cent of the big developments retail landlords have done. The data here is saying (consumers have) less of a focus on dining and entertainment than what the landlords perhaps think. The landlords are less focused on the lower-return (investment) the customer is asking for which is carparking.”
The survey showed consumers were “not going to the mall more often to dine” in Australia. At the same time, they were increasingly using meal delivery services like UberEats and Deliveroo, which UBS identified as a key threat to increased spending in these dining precincts.
“It really does highlight a trend which I’m not sure most analysts or the market would be across,” Mr McCasker said. “We’re not saying (the landlords) have got it wrong, but the survey puts into question those strategies.”
UBS said its findings suggested landlords should focus more heavily on cutting up underperforming department stores and discount department stores to boost variety and services while spending more on parking to improve access.
But carparking facilities give shopping centres little bang for their buck, “another reason why we expect a decline in capex returns in Australia”. “It potentially means the landlords have to put more investment into these assets without getting an immediate return,” Mr McCasker said.
The reversing “wealth effect” as house prices continue to fall is expected to put further pressure on bricks-and-mortar spending, as is the “significant” boost to online shopping as a result of Amazon’s entry in late 2017.
In Australia, 93 per cent of respondents were aware of Amazon, 22 per cent had purchased an item and around 40 per cent said they were planning to. Importantly, whenever Amazon enters a country it leads to more people shopping online generally.
All 11 of its market entries have seen online shopping rates double in five years and the “same thing is occurring in Australia”. “Penetration rates are increasing as a result of Amazon launching in Australia despite Amazon being a very low proportion of total online sales,” Mr McCasker said.
Retail analyst Geoff Dart from DGC Advisory said the biggest issue facing shopping centres was their high rents compared with stand-alone stores or the “hypermarket” format of Home Consortium, which has taken over the old Masters sites.
“You can’t get away from the fact that it’s $600 per square metre compared to a stand-alone store or hypermarket like Home Consortium which is $200 per square metre,” he said.
“They’re expensive places to be, I think that’s sometimes forgotten. (As a shopping centre) you’re playing catch-up. All the tenants are saying, ‘We’re paying a lot in rent, what’s happening with foot traffic?’”
Mr Dart said shopping centres tended “to try and build things” like cinemas, entertainment and dining for the “sake of trying to justify a high cost structure to get more people into the centres”.
“But the shops can’t stay open that many hours to benefit from the foot traffic,” he said. “They can’t afford to be open at midnight. Shopping centres have huge, expensive cost structures and they’re losing tenants.”
Mr Dart predicts a growing number of national retailers that have strong enough brands in their own right to attract customers will start “looking for alternatives” in coming years. “With all of the (challenges) around retail they will be saying, ‘Why do I need to be in a shopping centre?’”