Cannibalisation threatens centre anchors

Despite subdued growth by anchor stores in shopping centres during the 2014-2015 financial year, the changing mix in centres is contributing to specialty shop outperformance, according to property and planning consultants, Urbis.

Traditional anchor stores have been affected by cannibalisation from new store openings, as well as intense price competition and low inflation.

In FY15, Coles, Woolworths and Aldi opened 82 new supermarkets around Australia. Kmart, Target and Big W also opened 24 new discount department stores. This level of new store openings in an otherwise low growth and low inflation market has resulted in supermarkets and discount department stores in shopping centres having a quiet year in terms of top line revenue growth.

In releasing the Urbis Shopping Centre Benchmarks 2015, Urbis Director of Economics and Market Research, Ian Shimmin, says that the strong performance of specialties, continuing evolution of centres to include more non-retail uses, and the growth of mini-major stores (stores in excess of 400sqm) have been the main themes affecting shopping centres this year.

“The stores typically referred to as anchors, because they have traditionally driven customer traffic flow in shopping centres, have stagnated,” said Mr Shimmin.

“Compounding this trend is the fact that department stores, which have been the mainstay of the large regional centres, have grown by less than 0.5 percent overall,” he said.

Despite this, shopping centres have continued to be important community focal points for a range of functions, not just shopping. Centres are broadening their mix of uses by including libraries, gyms, offices, personal and business services, as well as cinemas.

Finetuning the tenancy mix in centres to best suit the needs of the market, and to deal with change, are hallmarks of Australian shopping centre management.

In larger centres in particular, the number of customers has outstripped population growth, suggesting they are increasing in relevance. The tide continues to change and centres have continued to evolve, so much so that specialty stores (including those most affected by growth in online sales and competition from the majors) are adapting and winning.

“We’re seeing far more attention to shopfront design, visual merchandising and product differentiation in the better centres in Australia now, and consumers are responding positively,” said Mr Shimmin.

Regional shopping centres and CBD centres have been the standout asset classes in FY15, with specialty stores in these centres increasing by 4.3 percent and 4.4 percent respectively, on a like for like basis.

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Across all shopping centre classes, specialty store growth has outstripped the growth recorded by the majors.

“This year, we’ve also seen specialty growth in some surprising categories. For example, books are making a comeback in regional centres, and music, video, and games stores are one of the main growth categories in both regional and sub-regional centres. These are categories previously impacted by online sales.”

Entertainment and food are increasingly important elements of a successful shopping centre. In large regional centres, food and beverage outlets that are really kicking goals, up 5.2 percent.

“There is a clear and consistent trend towards more and better food and beverage in shopping centres. Centres such as Westfield Miranda in Sydney, Westfield Garden City in Brisbane, Watergardens in Melbourne, the new Eastland in Melbourne, and Cockburn Gateway in Perth are examples of the trend towards highly social dining precincts in shopping centres rather than food courts.”

Despite the rise of Foxtel, Netflix, Stan and other streaming services, cinema box office revenue has increased 10 percent in regional shopping centres and six percent in sub-regional centres. The cinema offer is changing, as is the profile of the customer.

“In the years ahead we are likely to see more significant changes in cinemas, such as better seating and a more quality food and beverage, in particular. Village’s Gold Class venues and the new model at Hoyts Eastland are examples of the way forward in cinema-based entertainment.”

Shopping centres are also likely to introduce more for families going forward. Play spaces, interactive mall games, family friendly events and facilities, and a broader range of entertainment options, even edutainment, are all on the horizon. Chadstone will soon house Australia’s first Legoland, and another edutainment player, Kidzania, is known to be interested in Australia.

Regional centre specialty shop rents have stabilised further, with growth at a modest 1.8 percent. Occupancy cost ratios (rent as a proportion of turnover) declined for the second year in a row, from 18.2 percent in FY13 to 17.3 percent in FY15, as some centre owners rebalance occupancy costs to account for the prolonged low growth environment.

This was due to negative rental reversions at some centres, coupled with generally higher specialty shop turnover productivity ( up 4.3 percent).

David Jones’ new approach, on display at the new Eastland Centre in Melbourne, as well as Pepkor’s deal to sell Debenhams’ merchandise through Harris Scarfe stores, are signs that Australia’s department stores may finally be reinvigorated.

“We’re also about to see the outcomes of a wave of development activity, especially in regional centres, and this will introduce new concepts and advances in the design of centres, as well as new technology, all of which will deliver the best possible customer experience. Around 22 percent of regional centres are currently undergoing some form of development activity, and another 48% have plans in the pipeline,” said Mr Shimmin.

Copies of the complete 2015 Urbis Shopping Centre Benchmarks reports can be purchased by contacting Darian Ribeyre on 03 8663 4884.

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