y research thought leadership visiting the shops · online retail continues to erode the market...

VISITING THE SHOPSA STUDY INTO CONSUMER CHOICE AT WESTERN AUSTRALIA’S MAJOR REGIONAL AND REGIONAL SHOPPING CENTRES

Y RESEARCH THOUGHT LEADERSHIP

NOVEMBER 2017

To discuss this Thought Leadership study or any Y Research Report further, please contact:

Mr Damian StoneChief Problem Solver

Y Research – Independent Commercial Property Information and Research

M 0433 525 414E [email protected] PO Box 683, Applecross WA 6153

linkedin.com/in/damianstoneTwitter: @YResearchNews

ABOUT Y RESEARCH

Y Research is an independent Western Australian property information and research firm.

Since its inception in 2010, Y Research has developed unique databases on Perth’s office, retail, apartment, tourism, industrial and regional property markets through on the ground property inspections. We believe that for data accuracy, there is no better substitute than looking at a property in person.

Our databases are supported by a wide variety of industry sources and extensive monitoring of the West Australian commercial property markets.

Y Research produces a series of regular reports on Western Australia’s office, retail, industrial, apartment and tourism markets, as well as providing consultancy and advisory services to a range of Government and private clients.

Y Research aims to provide high quality and more useful information to our clients, ensuring that they are better equipped to make decisions regarding their business.

DISCLAIMER

The information contained in this report has been prepared with care by Y Research and may include information from apparently reliable secondary data sources and which the author have relied on for completeness and accuracy. However, Y Research offers no warranty that the information it contains is accurate and disclaims all liability for any losses, damages, costs or expenses suffered by any person as a result of any reliance on this information.

Accordingly, all interested parties should make their own enquiries to verify the information and it is the responsibility of interested parties to satisfy themselves in all respects. No part of this document should be construed as investment advice, either in relation to the real estate sector or a particular transaction. Information in this publication has been obtained from a number of sources outlined in the report. Y Research does not guarantee its accuracy or completeness and disclaims any responsibility for loss of damage whatsoever arising in any way for any representation, act or omission, whether expressed or implied (including responsibility to any person by reason of negligence). Opinions and estimates constitute judgements, which change when circumstances change, if not before.

© Copyright 2017 Y Research Pty Ltd ABN 44 146 744 434.

All rights reserved. No part of this publication may be reproduced or retransmitted in any form or by any means electronic, mechanical, photocopying, recording, or otherwise without the prior permission of the author.

Y RESEARCH

UNIQUE DATA, UNIQUE INSIGHTS, YOU NEED

2Visiting the Shops - November 2017

Choice and Convenience.

On the 20 February 2005, a much younger version of myself, as part of my previous role at a property industry association, repeated this phrase handing out how to vote cards outside a polling place in Applecross during the referendum on extended trading hours on weeknights and the introduction of Sunday trading.

Choice and Convenience - was the key message of the Yes Campaign to voters. Extended trading hours would allow shoppers to pick times suitable to their lifestyle to shop, rather than rushing to fit their lifestyle into the arbitrary constraints of Government regulation.

57.4% of West Australian’s voted down extended trading on weeknights and 59.6% voted down Sunday Trading. Given my polling place was located between two of the most successful IGA’s in Perth, I was not surprised by the result, given the feedback I received on the day. Within 5 years, the new Government had introduced extended weeknight trading and Sunday Trading on the back of the resources fuelled boom in Perth’s population. As intended, extended trading has created jobs, fuelled the expansion of existing centres and been widely accepted by West Australians.

Choice and Convenience.

In 2017, WA consumers are increasingly spoilt for choice and convenience in terms of retail options. Perth is poised for a $5 billion wave of shopping centre development focusing on new neighbourhood centres, as well as the expansion of major centres to offer more dining and entertainment options, international retail and services such as gyms and child care. At the same time, the large format retail market, fuelled by the growth of Bunnings and the former Masters chain, has matured into a major part of the Perth retail property market.

Online retail continues to erode the market share of bricks and mortar retailers as consumers seek the best possible price. The looming launch of global e-commerce giant Amazon in Australia, in late 2017, is expected to further increase competition for scarce consumers dollars and impact the bottom line of Australian retailers.

Shopping today can be done at home, on the go or in store. With consumers having multiple shopping options, how can Perth’s major shopping centres compete? Smaller neighbourhood centres offer more convenience for shoppers. The internet offers a choice of affordable, shopping options from around the globe.

Increasingly shopping centres in Perth, Australia and across the globe are moving towards offering experiences not found online or in smaller centres. Centres are introducing fine dining precincts, expanded entertainment options (cinemas and concert facilities), services (child care and gyms) and introducing new types of retailers.

Where is Perth today in this evolution of shopping centres? What choice do WA consumers have when visiting our major shopping centres? This study seeks to define consumer choice in Perth’s major regional and regional shopping centres by examining the similarity of these centres in terms of their current tenancy mix. To establish the similarity of these centres, Y Research developed the Shopping Centre Similarity Score.

We hope these findings will assist Perth’s major shopping centres to differentiate themselves to thrive in the increasingly competitive retail market as well as provide the public with information about the shopping choices available to them in major shopping centres.

Thank you for making the choice to read this study. I hope the findings are convenient for you.

WELCOMEMr Damian Stone | Chief Problem Solver


We live in a world where, increasingly, products and services we want can be ordered on demand. Thanks to companies such as Uber (and Uber Eats), to Netflix, Amazon, AirBnb and Facebook, we no longer have to wait for a taxi, to cook, go to the video or book store, or tomorrow’s newspaper.

Armed with a smart phone, most consumer goods could be ordered online and delivered to your door. How do bricks and mortar retailers compete to retain their share of WA’s $34 billion retail trade market?

The performance of Department Stores, the anchor tenants of major regional centres, continues to erode. Sales in Department Stores in WA were down 4.3% in the year to July 2017 according to the Shopping Centre Council of Australia. Supermarkets, food, fashion, international retailers and services are becoming the new pillars of modern major shopping centres. These pillars are set to underpin the biggest change in Western Australia shopping centres in nearly two decades.

According to Y Research’s May 2017 Shopping Centre Development Report, an estimated $5.14 billion dollars is set to be invested in shopping centre developments across metropolitan Perth between 2016 and the end of the decade. These developments are a balance of new local services and regional entertainment hubs. Nine of Perth’s largest shopping centres are set to expand dramatically adding new Department Stores, supermarkets, international retailers and over 1,000 speciality stores due to the Activity Centres Policy. The Policy, which aims to establish community focal points, is also facilitating the development of non-retail spaces, such as childcare centres, gyms, medical facilities, offices, apartments and public meeting spaces.

INTRODUCTION

As a result, major shopping centres are evolving to become more than simply places to shop. The expansion of Perth’s major regional centres is based on providing what the internet and neighbourhood centres can’t: great public spaces where people can meet, eat and be entertained, in addition to shopping. These centres will rely on the experience offered to customers to drive traffic into bricks and mortar shops.

Central to the next decade of retail is getting consumers to the door of the shopping centre. The choice each centre offers consumers, based on their tenant mix, plays a key part in attracting customers to centres from beyond their primary catchment area. So in 2017, ahead of the wave of redevelopments, what level of choice do Western Australia’s major shopping centres offer WA consumers?

This Thought Leadership Report will:

> Analyse the current tenant mix of Perth’s 16 largest shopping centres using our new metric (the Shopping Centre Similarity Score) to determine the level of consumer choice across these centres;

> Examine how frequently consumers would visit each centre based on their tenancy mix; and

> Analyse the potential impact the arrival of international e-commerce giant, Amazon, could have on the performance of these centres.


This study reviews the occupancy of the 16 largest shopping centres in Western Australia. These centres contain approximately 41% of the space in West Australian shopping centres, despite representing just 5.5% of the 293 shopping centres in WA (Shopping Centre Council of Australia/Centre owners/Y Research).

The metropolitan shopping centres examined for this Report were:

Major Regional Shopping Centres (more than 50,000 sq m of NLA)

> Carousel Shopping Centre, Cannington – owned by Scentre Group;

> Cockburn Gateways Shopping Centre – owned by Perron Group;

> Galleria Shopping Centre, Morley – owned by Vicinity Centres and Perron Group;

> Garden City, Booragoon – owned by AMP; > Karrinyup Shopping Centre, Karrinyup – owned by AMP; > Lakeside Joondalup, Joondalup – owned by Lend Lease; > Midland Gate, Midland – owned by Vicinity Centres and

Perron Group; > Rockingham City, Rockingham – owned by Vicinity Centres;

and > Whitfords City Shopping Centre, Hillarys – owned by Scentre

Group.

Regional Shopping Centres (more than 30,000 sq m of NLA)

> Armadale Shopping City, Armadale – owned by Lend Lease; > Belmont Forum, Belmont - owned by Perron Group; > Innaloo Shopping Centre, Innaloo – owned by

Scentre Group; > Mandurah Forum, Mandurah; owned by Vicinity Centres; > Mirrabooka Square, Mirrabooka - owned by Perron Group; > Ocean Keys Shopping Centre, Clarkson – owned by

AMP; and > Warwick Grove Shopping Centre, Warwick – owned by

Vicinity Centres

SCORING SYSTEM METHODOLOGY – Y RESEARCH WEST AUSTRALIAN SHOPPING CENTRE SIMILARITY SCORE

To measure the diversity of the tenancy mix in these centres, Y Research developed a new metric – the West Australian Shopping Centre Similarity Score.

The system uses the frequency that retailers appear in each of the 16 centres to determine how similar each centre is. For example, video game retailer, EB Games, one of the limited number of retailers that is in each of the 16 centres, was assigned a 16 score, Woolworths, which is in 15 of the centres, was assigned a 15 score, through to individual, independent retailers such as newsagents, butchers, etc which were assigned a 1 out of 16 score.

Using the score of individual retailers, each centre was assigned a Shopping Centre Similarity Score based on their tenancy mix. Higher scores show a greater number of common retailers with lower scores highlighting more unique shopping options.

Score were developed to compare:

> The tenancy mixes across all 16 centres; > The comparative tenancy mixes of the 9 Major Regional

Centres; and > The comparative tenancy mixes of the 7 Regional Centres.

Each of the 2,719 stores reviewed were classified based on the type of store as well as their product offering.

Stores were classified as one of the following:

> Major retailer - such as a Department Store or supermarket;

> Mini Major - a store with more than 400 sq m. This typically includes stores such as JB Hi Fi, Best and Less and Red Dot;

> Speciality – all other stores except for stores classified as other retail;

> Other retail – typically stores that are serviced based such as travel agents, insurance, banks, cinemas and lotto kiosk.

STUDY METHODOLOGY


These definitions are taken from the Shopping Centre Council of Australia’s Sales Reporting Guidelines, December 2010.

To further clarify the tenant mix of individual centres, each tenant was classified by the operations of their business. There was no common tenant classification system across the 16 major shopping centres. Even between centres owned by the same company. The following classification system was developed for this study.

> Discount and Variety; > Entertainment; > Electronics; > Fashion; > Food and Beverage; > Health and Beauty; > Hobbies Gifts and Stationary; > Home and Lifestyle; > Major; > Services; and > Sport and Leisure.

As part of the review for this study, the frequency with which a typical person would visit each store was estimated. Estimates were based on shopping frequency data from the ABS, consumer surveys by Roy Morgan Research, data from individual retailers’ Annual Reports and discussions with (research and retail property executives).

The following scoring system was used to develop Visit Score for each centre:

Typical Store Usage

> 10 points – More than once a week; > 8 points – once a week; > 6 points – once a month; > 4 points – once every three months; > 2 points – once every six months; and > 1 point – one visit a year.

With e-commerce giant, Amazon, set to open an expanded product range in Australia in late 2017, there has been significant press focusing on the risk to local retailers. Major retailers Harvey Norman, the Good Guys and JB Hi Fi, who typically favour large format retail, are expected to most at risk to Amazon product offers and pricing. To determine the potential impact of Amazon on Perth’s major shopping centres, a threat analysis was undertaken. The scoring system was based, in part, on online shopping data for Australia and the United States. Stores offering products such as books, music etc were judged to be most at risk with service providers judged to be least at risk to increased online shopping. Stores were given a score between 1-10 depending on their Amazon risk, with 10 representing most at risk and 1 stores with the lowest risk.

So, based on the outlined scoring system which Shopping Centres offer consumers the most choice?


Despite many shoppers having the feeling that every shopping centre is the same, the analysis for this study highlights the diversity of the tenancy mix in Western Australia’s major shopping centres.

The average Shopping Centre Similarity Score was 7.29 out of 16. This signifies that 45.5% of the stores in each centre are exactly the same. This is based on a typical centre, developed using the averages on the 16 centres studied (the typical centre would be 56,141 sq m in size and contain 170 stores).

The most diverse centre is Lakeside Joondalup registering Shopping Centre Similarity Score of 6.16. This score highlights that Lakeside Joondalup is 15.6% more diverse than the average for Western Australia’s major shopping centres. Lakeside Joondalup, Western Australian largest shopping centre, contains only 38.5% of retailers common to other major shopping centres. It is the only centre with 4 supermarkets, international fashion retailer H&M and discount Department store Harris Scarfe. Other unique, well known retailers include Quicksilver, Tiger Lily, Jean Pierre Sancho, Max Brenner, Ben & Jerry and Crust. Lakeside Joondalup is also one of three centres in metropolitan Perth to contain name brand retailers, Samsung, Hogs Breath Café, Hype DC, Windsor Smith, Timezone, General Pants Co, Oporto, Kookai and Ripcurl.

Major Regional centres Carousel, 6.5 Shopping Centre Similarity Score; Garden City, 6.61 Shopping Centre Similarity Score; Karrinyup Shopping Centre, 6.66 Shopping Centre Similarity Score and Whitfords City, 6.73 Shopping Centre Similarity Score, form the balance of the 5 most diverse shopping centres studied.

Unique tenants to Carousel, WA’s second largest shopping centre, include emerging food retailers Nene Chicken and Tommy Sugo, entertainment provider Foxtel and a range of independent food and beverage and health and beauty providers. Unique retailers to Garden City include international retailers Apple and Zara. Garden City and Karrinyup share a number of unique fashion retailers such as Aquila, Oroton, Mimco, Seafolly and Tookay Boutique. Both centres contain the only current David Jones Department Stores. There are 29 retailers unique to Karrinyup highlighted by Tony Barlow Menswear, Laura Ashley and Sheridan. Whitfords City has 58 unique retailers including Lincraft, City Farmers, Esprit and service providers such as a karate school, swimming school, Event Cinema and Library. Mirrabooka Square, 7.17 Shopping Centre Similarity Score, is the most diverse Regional Centre. This is driven by two factors - 31 unique retailers (predominantly food and beverage) and,

secondly, the absence of chain stores from other centres. The currently being redeveloped Mandurah Forum, is the least diverse centre of the 16 centres studied recording an 8.78 Shopping Centre Similarity Score. This score highlights that Mandurah Forum is 20.4% less diverse than the average for Western Australia’s major shopping centres. Mandurah Forum contains 54.9% of retailers common to other major shopping centres. This is driven in part from Mandurah’s role as a country centre which sought to offer retailers similar to those in the metropolitan area. 35.3% of Mandurah Forum’s retailers can be found in 75% of Perth’s major shopping centres.

Innaloo, 8.65 Shopping Centre Similarity Score, and Belmont Forum, 8.6 Shopping Centre Similarity Score, also recorded high Shopping Centre Similarity Scores. Both centres’ scores are influenced by the leasing strategies of their owners with significant overlap in tenants from centres owned by common owners. 36.2% of retailers at Belmont Forum and 34.2% of retailers at Innaloo are found in more than 75% of major Perth shopping centres.

Analysis into the relationship between shopping centre size and tenant diversity (using the Shopping Centre Similarity Score) highlighted a correlation co-efficient of -.80. This demonstrates that as the size of the centre increases, the number of common tenants decreases. A similar analysis between the number of stores and its impact on tenant diversity highlighted a correlation co-efficient of -.81. This could be explained in a number of ways:

> As centres get larger they require more unique, local tenants to lease space as there are a limited number of major retailers and franchise chain stores.

> The increased size of centres allows centre managers to be more creative in the type of retailers who occupy space.

> The former floorspace caps on WA retail centres encouraged a similarity in centres as centres were unable to expand and became reliant on well-known brands and retailers who could afford to pay market rents in major centres.

> WA’s Retail Tenancy Act, which gives tenants a minimum 5 year lease, could discourage innovation (new formats and new retail offerings) in retail leasing. As a result, more innovative offerings are likely to be located in neighbourhood strip shops or online.

Given these findings, the wave of shopping centre expansions are likely to encourage a more diverse range of tenants to occupy space.

CHOICE IN WESTERN AUSTRALIA’S MAJOR SHOPPING CENTRES


All Centres Comparison

Table 1 below highlights the Shopping Centre Similarity Score for each of the 16 shopping centres studied.

There are just 10 retailers common to all of Western Australia’s largest 16 shopping centres.

> Major local bank – Bankwest; > Travel company - Flight Centre; > Food and Beverage operator - The Coffee Club; > Accessories retailer – Strandbags; > Health services provider – OPSM; > Health and Beauty retailer – Priceline; > Video game retailer - EB Games; and > Mobile phone providers – Optus, Telstra and Vodafone.

There are no major tenants common to all centres with both major supermarket chains, Coles and Woolworths, common to only 15 of the 16 centres - Coles are located in an alternative centre to Midland Gate and Woolworths are based in a centre nearby to Armadale Shopping City, in the Armadale town centre. Retailers such as Specsavers, Australia Post, Muffin Break, Boost Juice and Bakers Delight are common to 15 shopping centres. Well-known retailers Dusk, Jeanswest, Prouds and Spendless Shoes can be found in 14 of the 16 shopping centres.

Major Centres Comparison

In addition to the 10 retailers common to all 16 centres, there are 26 retailers common to all 9 Major Regional centres:

> Angus and Coote; > Bakers Delight; > Boost Juice; > Bucking Bull; > Cotton On; > Dusk; > House; > Jamaica Blue; > Jeanswest; > Live Clothing; > Looksmart Alterations; > Lovisa; > Mazzucchelli's; > Michael Hill; > Muffin Break; > Nepolean Perdis; > Novo Shoes; > Pandora; > Professionail; > Shaver Shop; > Specsavers; > Sunglass Hut; > Sushi Sushi; > Tarocash; > Woolworths; and > Zubia’s Threading.


The average Centre Shopping Centre Similarity Score for Major Regional centres was 4.85 out of 9. This represents that 53.9% of the stores in each centre are exactly the same. This is based on a typical centre, developed using the averages of the 9 centres studied, which would be 70,657 sq m in size and contain 214 stores.

The most diverse centre remains Lakeside Joondalup which scored 4.39 out of 9 on the Shopping Centre Similarity Score. Lakeside Joondalup contains only 48.8% of retailers common to other Major Regional shopping centres. All other Major Regional Centres contain over 50% of common tenants.

When compared to similar sized centres, there are minimal changes in rankings. Whitfords City improves its ranking due to the level of unique services offered in the centre. Galleria’s ranking declines – this is potentially due to the fact that Galleria was the first centre to cap out under the old Metropolitan Centres Policy, in 1994. It is likely that the tenancy mix in Galleria has been used as a template for other centres as they have expanded.

Table 2 below highlights the Shopping Centre Similarity Score for each of the 9 Major Regional shopping centres studied.


Regional Centres Comparison

In addition to the 10 retailers common to all 16 centres, there are just 5 retailers common to all 7 Regional centres:

> Major Australian bank - CBA; > Service provider - Australia Post; > Discount Department store - Kmart; > Lifestyle store - Thingz; and > Supermarket - Coles.

The average Shopping Centre Similarity Score for a Regional Centre was 3.47 out of 7. This represents that 49.6% of the stores in each centre are exactly the same. This is based on a typical centre, developed using the averages of the 7 centres studied, which is 37,476 sq m in size and contains 113 stores.

The most diverse centre remains Mirrabooka Square which recorded 3.22 out of 7 on the Shopping Centre Similarity Score.

Mirrabooka Square contains only 46% of retailers common to other Regional shopping centres.

When compared to similar sized centres, Innaloo improves its rating from the 6th rated centre to the 2nd highest rated centre. This is due to common tenants shared with major regional centres owned by the same company.

Belmont Forum, Mandurah Forum and Armadale Shopping City contain over 50% of common tenants. This is likely linked to common leasing strategies of the owners and, with Mandurah and Armadale, their distance from the CBD and other major centres.

Table 3 below highlights the Shopping Centre Similarity Score for each of the 7 Regional shopping centres studied.


With strong competition for the limited consumer dollar, the fundamental challenge of retail in 2017 is getting customers to the front door.

Regular retail sales patterns, Christmas, Easter, end of financial year are well anticipated by customers. With affordability a key concern, consumers are waiting for sale prices to purchase; this is leading retailers to extend sales offers, thereby blunting the impact of traditional strong sales months. New drivers, such as the experience offered and the services and tenants on offer in each centre, are playing an increasing role in driving foot traffic.

What role does a diverse tenancy mix play in bringing customers to the door?

As outlined, for this study, a scoring system was developed to rate the frequency with which a typical person would visit each store. The maximum score was given to retailers that would attract customers to the centre more than once a week, such as supermarkets. High points were given to retailers that would attract customers once a week, such as coffee shops, or once a month, such as most fashion retailers. Lower scores were given to retailers that attract customers less frequently, such as once every three to six months (shoe stores, jewellers, service providers). Retailers who typically attract customers only once a year, such as travel agents, optometrists, cobblers etc, were given the lowest scores.

So based on the scoring system, what is the typical Visit Score for each centre?

The average Shopping Centre Visit Score was 4.59 out of 10. This represents that a typical consumer would purchase an item from a centre just over once every three months.

Mirrabooka Square recorded the highest visit score of 5.1 out of 10. Consumers would visit Mirrabooka Square 11.1% more frequently than the average centre. This is influenced

by Mirrabooka Square having three supermarkets (Coles, Woolworths and Aldi), 5 cafes and convenience offerings - butcher, bakery, green grocer and newsagent/lottery kiosk. Warwick Grove had the second highest Visit Score, 4.96, due to dual supermarkets, dual gyms (including former boxer Danny Green’s independent gym), 4 cafes and convenience offerings – dual butchers, bakery, green grocer, service station and newsagent/lottery kiosk. Belmont Forum’s visit score of 4.81, was influenced by three supermarkets and 4 cafes. The three top scoring centres also had the fewest lowest scoring retailers of the 7 regional centres reviewed.

Midland Gate recorded the lowest Visit Score of 4.39 – highlighting that a typical consumer would purchase an item from a store in the centre just over once every three months. Consumers would visit Midland Gate 4.4% less frequently than the average centre. Centres with lower visit scores have a higher number of retailers that attract customers once a year (travel agent, foreign exchange, mobile phone repairers, optometrists).

Table 4 below highlights the Shopping Centre Visit Score for each of the 16 shopping centres studied.

Analysis into the relationship between shopping centre tenant diversity (using the Shopping Centre Similarity Score) and each centre’s Visit Score highlighted a low correlation co-efficient of 0.19. This would infer that increased consumer choice is not a strong determinant of consumer shopping habits.

This could be explained in a number of ways:

> The proximity of the centre to consumers. Despite increased choice, consumers are still likely to shop at a centre close to their home address (within the primary catchment of the shopping centre).

> Shopping habits are more likely determined by consumer needs/desires than choice of retailer. The focus is on the item required not the number of options to purchase the item.

> A lack of consumer awareness of choice in major shopping centres.

> While the focus of this system was to determine consumer purchasing patterns, it would not account for the social aspect of browsing. This would increase the visitation numbers to each centre. Centres with more options may attract more visitors to browse.

HOW OFTEN TO PEOPLE VISIT THE SHOPS?


WHAT RISK DOES AMAZON POSE TO WA SHOPPING CENTRE RETAILERS?

The risk to local retail posed by the looming launch of international e-commerce giant, Amazon, has driven significant press and industry chatter in 2017. While it is generally accepted that Amazon’s launch will negatively impact some retailers, there are many products that consumers still prefer to buy in-store rather than online.

To determine the potential impact of Amazon on Perth’s major shopping centres, a threat analysis was undertaken. Stores offering products such as books and music, that are widely purchased online, were judged to be most at risk and awarded the highest score 10 out 10. Retailers such as health and beauty (hairdressers, massage and optometrists), independent food and beverage outlets and services, such as watch repair, were judged to be least at risk to increased online shopping and given the lowest score of 1 out 10.

So based on the scoring system, what is the typical Amazon Risk Score for each centre?

The average Shopping Centre Amazon Risk Score was 4.1 out of 10. This represents/indicates/shows that the average centre is just under moderate risk (5 out of 10) to increased online shopping (Amazon).

Warwick Grove recorded the lowest Amazon Risk score of 3.53 out of 10. This represents that Warwick Grove, due to its tenancy mix, is 13.9% less at risk to increased online shopping than the average centre. Warwick Grove, Belmont Forum, with a 3.6 Amazon Risk score, and Mirrabooka Square, with a 3.72 Amazon Risk score, are at reduced risk to online shopping due to tenancy mixes with high exposure to services such as hairdressers, skin and nail care professionals, drycleaners etc. These centres have retailers with low visit scores but are impossible or difficult to recreate online – watch, shoe and mobile phone repair, massage, optometrists and cafes.

Karrinyup, 4.59, and Garden City, 4.56, recorded the highest Amazon risk scores – this was due to their tenancy mix focusing on fashion. Online clothes shopping is one of the fastest growing sectors for online retail. There is anecdotal evidence that consumers are visiting stores to determine fit and how clothes look on them and then heading online to order. The focus on high end fashion may limit the impact of Amazon in the short term. The Amazon risk scores for these centres, due to their tenancy mix, make them 12% and 11.2% more at risk to increased online shopping than the average centre.

Table 5 below highlights the Shopping Centre Amazon Risk Score for each of the 16 shopping centres studied.


The retail landscape in Western Australia remains difficult after the boom.

Low wages growth, slowing population growth, a relatively high Australian dollar and high levels of household debt have all played a role in WA’s reduced consumer spending in recent years.

The next 5-10 years will bring the biggest change to WA’s retail landscape in 20 years.

Nearly 50 projects, a mix of expansion to existing centres and new neighbourhood centres, are forecast to be completed between 2016 and the end of the decade. Proponents of these projects are set to invest an estimated $5.1 billion. Upon completion these projects will increase the supply of shopping centre floor space in metropolitan Perth by 25.7%.

Importantly, these centres will give local consumers more choice of retailers with expanded centres adding new supermarkets, department stores, discount department stores, international retailers and an estimated 1,480 speciality retailers.

The forecast level of development places pressure on existing centres to retain and grow their existing customer base. The arrival of Amazon into Australia is, on average, a moderate threat to the tenancy mix of existing major centres in WA.

Centres are evolving into two centre types:

> Everyday convenience centres based around growing supermarkets and

> Regional level activity centres based around the shopping experience – better dining options, new international retailers, incorporation of emerging technologies and complimentary uses such as apartments, medical/childcare centres and office space.

Centres that cannot compete on convenience with neighbourhood centres, and tenant diversity with Major regional centres, sub regional and regional centres, risk getting stuck in the middle. The evolution of the tenancy mix and product offering in these centres is the next major change coming to WA’s shopping centre landscape.

With more and more shopping choices available to consumers, creating a point of difference between centres is crucial to attracting shoppers from broader catchment areas. Currently 45.5% of stores in Perth’s major 16 shopping centres are exactly the same. Across each centre there are retailers (newsagent, butcher, baker, green grocer, repairers, food and beverage options) that are operated by different owners/marketed by

different names which are, in essence, the same offering.

So with the similarity of Perth’s major centres closer to 60%, how can these centres differentiate themselves to thrive in the increasingly competitive retail market?

The first step has been the introduction of the Activity Centres Policy which, by removing arbitrary floorspace caps on centres, is in the process of changing major regional centres from big retail boxes to community focal points encompassing a broader range of uses. The ability to expand is key to greater consumer choice. This study highlighted the strong relationship between larger centres and tenant diversity.

Secondly, the wave of development will create:

> Dining precincts, including top line restaurants and taverns such as Whitfords Brewing Company which recently opened in the first stage of the Whitfords City redevelopment.

> In limited examples, there is space planned for concerts and events offering public spaces for experiences beyond hearing Australian Idol contestants.

> Refurbished and expanded cinemas are a key feature despite the rise of streaming services.

> New service based retailers - gyms, childcare centres, medical centres and children’s playgrounds that will create daily interaction.

The shopping experience is central to attracting customers to bricks and mortar centres. Services such as store concierges, VIP offers and special parking zones will become more common. A focus on store design, casual mall leasing mix, the type of music played in common areas and even the paint colour used will be crafted to invoke the desired response for consumers (paraphrasing 2000’s boyband N’Sync) to buy, buy, buy.

Getting customers to the door more regularly is key. Major shopping centres are evolving to become more than simply places to shop. They are becoming public spaces where people can meet, eat and be entertained, in addition to shopping. Increasing the dwell time of consumers is a focus of centre managers and leasing agents.

Tenant diversity in WA’s major shopping centres will also be boosted by the attraction of new retailers to centres. International retailers from Apple to Zara are typically only opened in 1-2 locations in Perth - a central CBD offering and a suburban shopping centre. Apple is located in Hay Street, in the CBD, and Garden City. H+M has two stores, one in Forrest Place in the CBD and one in Lakeside Joondalup.

CONCLUDING THOUGHTS


More international retailers are set to open in Perth in the current development wave including Marks and Spencer, TK Maxx, Uniqlo, GAP, Sephora, Miniso, Decathlon and Under Armour. Amazon is also likely to occupy at least one physical store in Perth by the end of the decade. Current international retailers have largely been American or western European; in the future Perth can expect to benefit from expanding Asian retailers. International retailers are also partnering with local retailers. A former local tenant, discount department store Harris Scarfe, which recently opened at Lakeside Joondalup, will exclusively offer British retailer Debenhams fashion apparel. Myer has a similar deal across 6 stores with British retailer John Lewis. This approach allows international retailers to test the market ahead of opening stand-alone stores.

Attracting retailers who typically favour different retail formats (large format retail) can also boost tenant diversity in centres. Fundamentally businesses, in particular retail businesses, want to be located close to their customers. Car maker, Subaru, has opened 6 pop up shops in shopping centres across the east coast. These pop up stores give Subaru exposure to potential customers who would never visit a car yard.

The key benefit of Subaru’s pop up store strategy, is it allows consumers to experience the product, the feel of sitting in the driver seat, the new car smell or how their family would fit in the car. Experiences help people create an emotional connection to the product.

With many shopping options, consumers will visit stores based on their convenience but also the entertainment value of the experience. Time poor people are making mental calculations: is it worth tackling the crowded car park, finding the store, receive limited help from shop assistants to pay more for an item, or is it easier to go online, find the cheapest option with free postage for returns?

Shopping centres globally run the risk of devolving from places where people shop to showrooms where consumers visit the store, determine the suitability of the product for their needs/wants and then, instead of walking to the counter, grab their smart phone and buy from Amazon.

In a world of choice, it is crucial that consumers choose your centre. Improving tenant diversity, focusing on attracting people to the centre more frequently, and offering services and experiences that can’t be found online will make your centre the “choicest”.


LIST OF SOURCES

Information for this report was collected and analysed in September and October 2017. All information sourced through the methodology above was, to the author’s knowledge, correct as of 30 September, 2017.

Information on the tenancy mix of each centre was taken from their online store directories during this time frame. Details may have changed since final data collection and independent verification of data should be conducted prior to relying on this information.

SOURCES

The following sources were used in the development of this Thought Leadership study:

> Y Research Metropolitan Perth Shopping Centre Development Report – May 2017. > Shopping Centre Council of Australia Sales Reporting Guidelines December 2010. > Shopping Centre Council of Australia Australian Shopping Centre Industry Scale and Performance Measures August 2015 > Shopping Centre Council of Australia Research Note October 2017. > ABS Retail Trade data Cat 8501.0. > NAB Online Retail Sales Index. > Public records of shopping centre owners, major retailers and commercial agents. > AFR April 24 2007 “How mall owners are fighting Amazon with carnivals and events”. > Business Insider US February 10 2017 “National Retail Federation estimates 8-12% US e-commerce growth in 2017”. > US Census Bureau Quarterly E-Commerce Sales 2017. > The West Australian 13 February 2017 “Spending habits show our priorities, not pressures”. > JLL Centre Managers Survey 2017 > Roy Morgan State of the Nation: Australian Retail > Torch Media Supermarket Insights Woolworths Shopper Behaviour > The Australian 3 October 2017 “Westfield rethinks shopping centres as department stores decline”. > The Real Deal 16 September 2017 “How to save malls? Kill the apparel store” > ABC News 5 September 2017 “How shopping centres are changing to fight online shopping”

More information on Perth’s major 16 shopping centres are available from Y Research including the mix of store types per centre and the similarity of tenants across store classifications.

If you would like to discuss the findings of this study further, and their implications for your asset, please contact Damian Stone, Principal of Y Research via phone 0433 525 414 or [email protected]


y research thought leadership visiting the shops · online retail continues to erode the market...

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