COVID-19 has created a time of disruption to all sectors of business, accelerating market trends that were previously dormant and exposing the weaknesses of many common business models.
This Darwinian economic landscape has led to incredible adaptation across the industry and for this week’s blog we would like to discuss the changes we are seeing in shopping centres and the emergence of town centres as a potential to replace the traditional large scale shopping centre model.
There are four key forces driving the change towards town centres:
- Hyper local retail economies
- Digital economies and online shopping
- The disruption to traditional anchors
- Working from home
This blog will explore how each of these factors are contributing to the disruption to traditional shopping in Australia.
What is a Town Centre?
Traditionally “town centres” were the central shopping district within a city or community which dates back thousands of years. However, demographics changes with increases in population and urban sprawl they were replaced with larger Central Business Districts and super regional shopping centres.
The modern town centre acts as an elevated community centre including both experience based and commercial/retail space as well as communal working/activity areas. During COVID-19, Town Centres have been far less effected when compared to CBD or shopping centres.
Hyper Local Economies
COVID-19 has meant that people are on the road less than ever before, in some parts of the country it is against the law to travel more than 5km away from your house.
But what does this mean for shopping centres and consumer spending patterns?
Well, people are spending more locally, tending to stay away from public transport, CBD areas and large retail spaces.
In Google’s August mobility report, Australian’s are spending 20% less time in dedicated retail spaces, 18% less time in workplaces and 42% less time using public transport.
Lease data shows why CBD shopping centres are suffering. Town Centres address these problems due to their location and multiuse capabilities. They are usually located in medium to high density residential areas and therefore public transport, or parking is not a concern for their customers. The reduced travel also creates less potential spread for disease which has a positive impact on consumer confidence and public safety.
Google’s mobility report revealed that people are eager to get back into green spaces with a 17% increase in public park visitations.
Town Centres such as Rouse Hill are located opposite parks and green spaces which increase their appeal to those who are looking to take a break and get outside.
Moreover, 32% of the Australian workforce now operates online, with some sectors such as finance and communication operating with over half their team working from home. This influx of remote working has created a high demand for local community workspaces as many people are not adequately prepared to work from home and/or operate more effectively in a social setting.
Childcare that is accessible and in close proximity to homes is also another draw for people to choose hyperlocal spaces rather than larger shopping centres.
The multiuse aspect of Town Centres as well as their location has meant that they have not suffered the same dramatic fall in foot traffic which has devastated the rest of the shopping centre industry.
COVID-19 has accelerated the growing trend of online shopping, with 9.4% of sales being conducted online pre pandemic and predicted to rise to 16-19% of shopping by the end of 2020 (Source:NAB Online Retail Index April 2020).
“COVID-19 has compressed a decade of change into six months by dramatically increasing the online penetration rate. ”- Simon Fonteyn, Managing Director Leaseinfo.
Historically, during an economic downturn, buyers will be more concerned with getting the lowest price available for a product and will spend longer periods of time comparing price points. This type of buying heavily favours online shopping where price comparison is easy and can be done all in the same place. For example, during the GFC, 91% of shoppers felt as though they could get the best price online, rather than in store.
This seismic shift towards online retailing cannot be ignored by shopping centres and the pressure is mounting on centres to ignite their e-commerce strategies. So far, town centres such as East Village and Stockland Shellharbour are positioning themselves as e-commerce distribution centres. Utilising their proximity to residential space, town centres can act as distribution hubs for e-commerce which not only connects the centre to the local community but further increases foot traffic to the area.
There are many ways in which centres may facilitate multi merchant online ordering in the future including Omnichannel retail space, lockers, increased space to store packages and deliveries, dark stores and kitchens and hyper efficient click and collect web services.
The centres that are able to adapt to these changes will be able to engage in an exploding online market.
Remixing of Traditional Anchors
Throughout COVID-19 we have seen centres with a lower exposure to discretionary retail retain higher volumes of foot traffic compared to centres that have a large volume of discretionary retail, especially fashion.
It is no surprise to hear that large department stores and discount department stores have been hit hardest by COVID-19. Their limited online presence, unreliable supply chains and lack of uniqueness when it comes to their product offering has seen smaller, highly adaptable online or omni-channel businesses surpass them.
Traditionally, town centres have always concerned themselves with a mix of non-discretionary retail, trying to offer practical options for the surrounding community. Town centres are able to adapt by providing essentials on site, and the option for people to order items online and pick them up at the centre.
Perhaps the most appealing aspect of Town Centres is their focus on experience-based retail. Community events, children’s art days and workshops are commonplace in centres and this mix of traditional and experience based retailing opportunities is what will bring customers into Town Centres well into the future.
This post was authored by Simon Fonteyn. Simon is one of Australia’s leading experts in retail, childcare and medical leasing and rental valuations. He holds a Degree in Accounting & Finance, a Diploma of Valuation, a Masters of Management and is an Associate of the Australian Property Institute. With over 25 years experience in the commercial property industry, Simon founded LeaseInfo® as a way to provide more transparency to the industry.