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The rise of experiential and activity-based retail

To address declining sales and changing shopping habits, larger mall operators have started enhancing shoppers' experiences.

SINCE the global financial crisis in 2009, Singapore's gross domestic product (GDP) and household incomes have recovered, growing by a compounded annual growth rate (CAGR) of 4.6 and 4.5 per cent respectively over the past 10 years (2009-2018). However, retail sales and food and beverage (F&B) services indices grew by 1.6 and 1.8 per cent respectively over the same period.

The advent of e-commerce and mobile device technology from 2010 had impacted retail malls by offering shoppers access to 24/7 shopping, convenience, product information and reviews, lower prices and more choices. This changed the way people shopped, from browsing the products and services available in stores to doing research about the product, pricing, store offerings and reviews online. Hence, the major difference between going to the mall and shopping online would be the customer experience.

Despite double-digit growth of e-commerce sales since 2011 vis-à-vis low single-digit growth for retail and F&B sales, online retail accounted for less than 5 per cent (or just over S$2.1 billion) of total retail sales in 2018. Therefore, brick-and-mortar stores remain relevant and account for more than 90 per cent of retail sales. According to e-Conomy 2018, e-commerce sales are forecast to grow to some S$5 billion by 2025 (or a CAGR of 14 per cent).

To address declining sales and changing shoppers' habits and preferences, larger mall operators started enhancing shoppers' experiences by increasing the experiential and activity-based retail mix in their malls. Since 2009, the proportion of F&B's contribution by gross revenue and net lettable area (NLA) has increased significantly, followed by services and education, leisure and entertainment. On the other hand, fashion, department stores and supermarkets or hypermarkets have shrunk in response to the growing e-commerce offerings of these segments. However, there has been a trend reversal for established online retailers like Taobao and Love, Bonito which have gone offline to complement their omni-channel strategy, which delivers an integrated customer experience.

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Today, F&B contributes a considerable part to a mall's overall retail mix and strategy in promoting shoppers' experience and retaining customers as a place of meeting and community.

The other growing segment is leisure and entertainment retail. While these tenants are not large revenue generators and occupy more space, they are usually perceived as "anchor tenants" with the purpose of attracting more footfall and promoting community gathering through their activity and event offerings. These include 24-hour gyms, fitness studios, social kitchens, indoor family games and activities, and cinemas.

This trend continues with the recent opening of Jewel Changi and Funan with many new-to-market F&B brands and flagship stores, but also attractions that are not directly retail-related (or non-retail) such as the Rain Vortex, Canopy Park, Hedge Maze at Jewel Changi as well as a theatre and a rooftop urban farm at Funan. These unique attractions appeal not only to a wide group of visitors, but also to the social media users through cost-effective marketing campaigns to boost footfall and ultimately, consumer spending.

Results so far

Based on the past 10 years' performances of Singapore's major retail real estate investment trusts (Reits) Capitaland Mall Trust (CMT), Frasers Centrepoint Trust (FCT) and Suntec Reit (SUN), overall results suggest that Reits have been relatively successful in maintaining and growing their market share and operating performance amid a subdued retail environment. The key performance indicators showed increasing footfall, net property income and positive rental reversions, albeit relatively low growth rates ranging from 1 to 3 per cent CAGR. CMT's tenants' sales per square foot (psf) grew by approximately 2 per cent CAGR.

While Reits are able to adapt to the changing retail landscape, maintain healthy occupancy rates and achieve positive operating profits (as a portfolio), the opposite may be happening to the older, less accessible and less well managed malls with many reportedly struggling to stay relevant and afloat. Thus, some of these strata-titled malls are currently listed for collective sale, namely, Beauty World Centre, Katong Shopping Centre, Queensway Shopping Centre and Sim Lim Square.

The Bangkok experience

The evolving retail mix and the impact of e-commerce on retail malls are not unique to Singapore but are also happening regionally and globally. In November 2018, the opening of Bangkok's largest mall, IconSiam, offers some 5.6 million sq ft (gross) of retail space including many flagship stores, F&B, experiential and activity-based retail with unique attractions such as an indoor floating market, heritage museum, rooftop park and river park.

While these Thai mega-malls can offer the "bells and whistles" of retail experience, some smaller community malls (usually about 50,000 to 60,000 sq ft) are also thriving by providing more intimate and localised experiences. One notable development that has won many accolades is the Commons in Thonglor, a four-storey mall offering specialised and selected quality F&B and retail vendors, occupying about 40 per cent of total gross floor space. The remaining space is allocated to communal spaces and uses where the mall owner gives back to the community and neighbourhood through activities and events held at these spaces by collaborating with various non-profit organisations as well as catering to all age groups.

Most of the successful community malls in Bangkok cater to the neighbourhood and community it serves. Typically, a community mall's retail mix will allocate more than half to F&B, 20 to 30 per cent to services and the remaining to others such as supermarket, fitness centre or communal spaces.

The ever-changing retail landscape

Since the rise of e-commerce and technology, Reit-managed malls have been successfully repositioning their retail mix to increase footfall, maintain high occupancy and grow operating profits by introducing more experiential and activity-based retail. However, the incorporation of non-retail attractions are still uncertain in terms of the return on investments and whether these would translate to significantly higher spending coupled with higher footfall.

Smaller, less well-managed malls may continue to struggle as they do not have the same resources, marketing and expertise to adapt and change as quickly. Some community malls in Bangkok have managed to stay relevant to their neighbourhood and community, which could potentially be emulated here.

With the willingness of today's shoppers to pay for enhanced and personalised experiences, engagements and outcomes that differ from online transactions, experiential and activity retail will continue to evolve and innovate.

  • The writer is the head of research at Edmund Tie & Company (ET&Co)