Retail time machine

The end of the decade is a time to look into the future and try to answer some crucial questions. For example, what will be the shape of shopping centres to come? One answer seems to be obvious: they will still be shopping centres
Mladen Petrov

You know a significant change on the retail market is taking place when high-end brands such as Prada and Louis Vuitton have finally backed down and started exploring the opportunities for online retailing to add to their high street locations. As the list of luxury retailers seduced by the internet grows, the question over the future of traditional shopping – including malls – now arises. What does the future, or at least the next couple of decades, hold in store for shopping centres?
At the turn of the new century, Jones Lang LaSalle published its ‘Retail Future, 2010’ report, detailing the company’s vision of the future at the time. What did the analysts get right in their predictions for economic, technological, socio-demographic and socio-cultural changes? Globalisation, a new wave of conscientious consumption and socially responsible companies, the rise of experimental retailing, the role of brands as status symbols, clever consumption patterns and shopping as a leisure activity – and these were indeed among the leading trends that emerged over the last decade. The report, however, failed to predict the great retail boom of 2003-2007 and the crash towards the end of the decade, and it also underestimated the impact of new technologies and the internet.
Where to now?
The last ten years also saw the rapid development of the retail market in the CEE region. GDP forecasts for the next ten years attest to the fact that there is still a lot of excitement on some CEE markets. In this regard shopping centre developers are expected to be kept busy. According to data by  IHS Global Insight, over the next ten years the  GDP of Central European countries is to rise approximately twice as fast as the GDP of the EU, reaching 3.56 pct in 2020, compared to 1.96 pct EU GDP growth in the same year. However, the increasing saturation of retail space, particularly in Western Europe, will provide a strong incentive for retailers and investors to go east and penetrate less mature markets, such as China and India.
Despite this, it is going to be the mature Western markets that will lead the way in terms of change. “European markets won’t buy anything, as was the case just a few years ago in countries such as Poland. The competition here is much bigger than in Asia, which means that shopping centres really need to be creative,” claims Kathrine Heiberg, CEO of Reteam Group of Denmark, a firm specialising in the development and redevelopment of retail schemes across Poland and the Scandinavian countries.
For example, as consumers become more environmentally conscious they also expect the same from retailers and developers, a trend clearly seen, among others, in Scandinavian countries. “At this point sustainability is a pre-condition, not some kind of extravagance,” says Dr. Herman Kok, international research director at Multi Development. The Netherlands-based development company has decided to acquire BREEAM green certificates for all its future retail schemes, including the mixed-used Nova Karolina project in Ostrava. “The regulations imposed on developers will be toughened up. Projects that fail to obtain a green certificate in the long run will be hard to sell. Investors already require such certificates and no longer see them as an advantage, but as a must,” he adds.
Back to roots
In terms of macro-economic indicators it is unlikely that the problems of the last decade will be solved for good. The rising cost base against low GDP growth, increased operational charges and persistent structural problems such unemployment, private and public debt, as well as the return of the pension crisis, are a few of the big issues that will also have an impact on shopping centre development. The fast-paced 21st century lifestyle also needs to pause for reflection while strolling around the shopping centre. Herman Kok refers to malls as “the third place”, a space customers mostly attend after home and work. This is why centres are starting to look more like cities, with their goal now being to offer customers as much quality free time as possible, given that time has become a very limited resource. Dr. Kok believes that the future of shopping centres is also about getting back to roots. “We are going to see more local components in shopping centres, which should be designed predominantly as places where customers can get closer to their local identity,” he forecasts.
Market players seem to agree on one thing. “Malls need to find their identities – local or regional – and stick to them,” argues Eli Mazor, the regional marketing director for Europe and India and managing director in Poland and Latvia of Plaza Centers. “Not every mall can serve as a regional shopping centre – and that’s fine. In the future this fragmentation will become much clearer.” According to Kathrine Heiberg, the process has already started. “Galeria Mokotów and Arkadia in Warsaw are two clear examples of the trend. Despite its tenant mix, Galeria Mokotów still has that district shopping mall feeling. Customers who don’t live in the area don’t travel especially to go there, as is the case with Arkadia. Malls are starting to understand what kind of shopping centres they are. The truth is that you can’t build bigger and bigger shopping centres only to attract customers. In this part of the world you need to know your place. Otherwise, you will end up building massive architectural masterpieces, which are not solutions for securing a successful investment, either for retailers or for the investor,” comments Kathrine Heiberg.
The industry also agrees over one certain thing – the face of the shopper is changing as baby-boomers retire and the number of young adults falls dramatically. According to the 2010 ‘Retail Demographics: Concern or Opportunity?’ study by CB Richard Ellis, the CEE region is to face the demographic challenges of stagnating or declining and ageing populations similar to those in Western Europe. Bulgaria, Ukraine, Russia and Romania are all facing significant population declines and are forecast to shrink by more than 15 pct by 2050 according to United Nations projections. Emigration, a lack of immigration, low birth rates and poor public health will be among the primary reasons for these declines. “The increasing proportion of elderly people will certainly change shopping centres, which will have to learn how to service such clients. The merchandise should be brought out to the car, the layout adjusted, the number of elevators increased,” says Herman Kok. In this regard the tenant mix should also be adapted, providing opportunities for  retailers such as Marks & Spencer, C&A and Peek  & Cloppenburg, who massively target elderly people.
Online vs. offline
Further into the future, the retail experience becomes a must, with retailers forced to provide sensational customer experiences and in-store services. Following the trend from the last decade, shoppers will no longer just look for products to buy, they will also expect a lifestyle experience to help them escape for a while from the stress of daily living. The customer of the 21st century will be complex and confident, bringing clever consumption behaviours from the last decade into the new one. Therefore, shopping centre managers will have to come up with new ways to attract consumers to shop without counting what they spend. “For retail 20-30 years is not a significant period of time,” declares Gábor Radványi of property developer Futureal. He is the senior architect of the firm, whose Corvin shopping centre development was the only retail inauguration in Budapest in 2010, and which is now owned by France’s Ségécé. The biggest general change in retail is probably still to come with the unstoppable growth of online shopping. As Mr Radványi points out, standardised items like computers, electronics and related accessories will increasingly be bought over the internet.
However, Kathrine Heiberg believes that good old-fashioned shopping is not dead. “Around 80 pct of what we spend is for things we can live without, but we happen to want them rather than need them. Therefore, we will still need places to shop. You need to go to the shopping centre simply because you feel like buying something, but you don’t know what yet,” she explains. According to her, in the future brands are going to be more service-focused than product-focused, which also requires a presence in the centre. “Interestingly enough this also applies particularly to electronic goods. Internet shopping is 100 pct product focused, but many customers need to hear from professionals behind the counter and are actually ready pay more for the service and knowledge that comes with the purchased product,” believes Kathrine Heiberg.
The iconic status of the Apple store in Manhattan is evidence of this. “Such stores, including those located in shopping centres, will serve as showcases – the customer needs them before eventually buying online,” adds Herman Kok. “Even Amazon, the largest online bookstore, is now considering opening physical stores, so obviously the days of traditional shopping are not over,” he says. On the other hand, as Jones Lang LaSalle highlights in its ‘Retail Future, 2010’ report: “The growth patterns of e-commerce mean that the supply of retail space in developing markets needs to be carefully considered. Just as we have witnessed leap-frogging regarding technological adoption – such as when many Africans jumped straight to owning mobile phones having never previously had fixed lines – we will increasingly see a new retail model develop in the Far East which is potentially ‘asset-lite’.”
24/7 shopping
“The internet is just a tool. Fair enough. It also happens to be the largest store ever, but it won’t replace shopping centres or the high street. This doesn’t mean that shopping malls don’t have problems. Music and travel industry players know what I mean. Fifteen years ago nobody thought we would be buying clothes online. The very thought of luxury retailers going online was implausible. Now it is happening,” comments Dr. Carl Rohde, the owner of Science of the Time, an international network of futurists and trend watchers. “The future for shopping centres is not very bright, at least on developed markets. Developers in Poland can still afford the who-cares-times-are-good-for-us-now attitude, but ten years later they will be facing serious problems. One shouldn’t over-estimate the power of the web and should keep searching for the answer to the crucial question: ‘What is cool retail?” he explains. “When we hear from successful retailers such as Urban Outfitters that shopping centres are boring we have a problem. Some malls become boring due to their success. I saw that happen to Levi’s and Coca Cola – when you are successful you forget about being innovative and take everything for granted, and this poses a great danger for the industry,” Carl Rohde comments. Multi Development’s Herman Kok goes on to add that the future could also include the virtual shopping centre – the online extension of the physical centre – once retailers and mall owners figure out a workable scheme to split the sales margin. A few years from now we might also be able to witness the rise of the 24/7 shopping centre.
Designing success
“Shopping centres have sixty years of history but they’ve always had one major goal – to offer customers what they need. Clothes stores account for up to 70 pct of the stores in a centre, and this is not likely to change,” says Plaza Centers’ Eli Mazor. The reign of American retail concepts is likely to continue into the new decade as leading US retailers such as Best Buy, Gap, Anthropologie and Abercrombie & Fitch have put expansion in Europe high on their agendas. “In my opinion, even two or three decades from now a successful project would still be all about the ease of access, location and how enticing the tenant mix is. Sure, we can invest more in state-of-the-art architecture, but at the end of the day this really doesn’t increase the turnover,” states Eli Mazor. Architect Gábor Radványi believes that any centre has to focus mainly on the expectations of its shoppers. “I would personally love to design futuristic buildings, but the reality is that Hungarian consumers don’t really want them,” he claims.
What challenges will architects face in the future? “I think designers have yet to fully realise that shopping centres are essentially for women,” says Antal Fekete, senior architect at Finta Studio. His company has designed a broad range of commercial projects and he headed the design work on the WestEnd and Allee centres in Budapest. “Any successful house, therefore, has to cater better to the needs of its target consumers through things like better accessibility from the car park or the number and size of the toilets.” In Gábor Radványi’s opinion, the main challenge for an architect building a retail project now, as it will be in the future, is to incorporate a range of services and amenities to make the centre appealing. As a new feature for the Hungarian market, Corvin features separate family toilets. These give, for example, dads the comfort of going to the toilet with their young daughters instead of having to face the awkwardness of choosing either one. “The challenge is always to compel customers to go upstairs, since the upper levels are not directly in their path when walking in from the street,” Mr Radványi explains. This is the reason why most plazas that have opened in the past few years have their food courts on the upper levels, a place where people naturally go when they get hungry, as opposed to older centres where the catering was typically in the lower sections. Since the format is a given and is expected to stay that way for many years to come, changes in the future are likely to be seen mostly in the improvement of services and catering better to the needs of shoppers. “I think the future will be about overhauling the existing centres,” comments Mr Fekete on the fact that the Budapest market, as with all major CEE cities, will probably see rather few new additions to the retail scene. In his view, the next few years will mainly be about the established players upgrading their centres. But booming markets, according to Cark Rohde, have also yet to come up with a clear picture of what the shopping centre of the 21st century should look like. “Fair enough, the stunning, new, shiny centres in China are impressive, but not very innovative. Even though they are larger than life, they still exemplify the peak of the development of the 20th century mall,” he concludes. 
Gergo Racz contributed to this article from Budapest