Malls - Survival of the Most Adaptable

The pandemic accelerates existing trends. Malls were already under pressure as banks cut branches and music stores yielded to the online juggernaut. Retailers like Edgars reduced their footprint while trading rental for shares, that now are worth little more than last year’s unsold fashions. Property companies that were stars of the stock exchange for almost a decade, saw their stars wane as the economy faltered. Construction behemoths in South Africa had already toppled before the pandemic hit.

As giants fall, will malls begin to shutter, becoming places of drug shoot-ups and gang shoot-outs amid the forgotten mannequins and bullet-chipped beauty counters? Will some battle on, amid mushrooming ‘to let’ signs and lessening footfall, while a few still flourish? The combined area of shopping malls in South Africa is estimated at 24 million m² of shopping space. This makes South Africa the sixth most mall-rich country in the world, behind only the US, Japan, Canada, the UK, and China. Across most of this space is a mind-numbing sameness as cookie-cutter architecture houses national retailers. Apart from a lack of variety and neighbourhood identity, money flows from the community to a remote head office and remoter shareholders.

Shopping malls favour the big box supermarkets with preferential rentals and exclusivity agreements designed to keep independent small businesses away. In November 2019, the Competition Commission told the major supermarkets to drop the restrictive clauses as they prevent, distort and restrict competition. But the barriers to entry remain. At a prime location, a national retailer may pay R100 per square metre, while the local specialist must pay two to five times more. The Mall owners justify the cost chasm with economies of scale and risk profiles.

Now the second biggest non-food retailer occupying a million square metres, mostly in malls, is in business rescue. When the giants fall, the mall is less visited – nail-bars and coffee shops suffer.

The time has come for all of us to get out of our analysis paralysis and be more practical, get to know this weird new world by taking a small step or a big step into the unknown and begin to birth new ideas. Maybe they will work straight away, maybe they won’t, maybe you will need to think more flexibly, but what is sure is that through small actions, come big learnings, and the only time we have to start is right now.

Blended Retail
One day I’m showrooming - browsing in the mall to buy on-line; the next I’m webrooming - browsing on-line then buy in-store. I may click to buy on-line then collect at the mall. We live in the omnichannel world and expect our chosen retailers to meet us there. On-line brands experiment with off-line, as physical shops add websites. Mall owners need to reconsider their purpose. Is it to provide bricks and mortar, with a few supporting services like security and cleaning? Or is it to provide blended retail support to their customers?

Safe Connections
As the pandemic ebbs and surges across the world, we will look for places where we feel connected and safe. Malls that offer shared experiences will have a head-start in the survival stakes. Experiences range from a ski-slope in the desert (Mall of the Emirates, Dubai), to shared space for local restaurants (Lifestyle Mall, Ballito), to a futsal court and herb garden on the rooftop with a cycle track inside (Funan Mall, Singapore). On a simpler scale, safe connections are made when common space, that acts as a highway between shops, is interrupted. For instance, by a weekend market with socially distanced stalls, along the centre of a broad, mall walkway.

Mini-Store Make-Overs
A retail solution gathering steam in the States is mini-stores. Brandbox houses six brands in a 1000 square metre space, for 6-12 months, giving online brands a taste of physical retailing. Shared services feature data and analytics that give daily footfall, dwell time, sales data and more — helping the young brands test, learn, and iterate. The Gathering Shops has micro stores – with 25 brands in 435 sq. metres. There is a mix of apparel, jewellery, beauty, wellness and home brands, which can merchandise in their pods and on plinths; leases typically range from 3-12 months. They are like multiple pop-ups, often migrating from the online space, jointly marketed and armed with insightful data. The most ambitious of them are ‘Neighbourhood Goods’ billing itself as a new breed of department store and ‘Showfields‘ the most interesting store in the world with the most interesting brands.’ Each has over 40 carefully curated brands in one location, rich in sensory experiences.

Urgent: New financial models
In South Africa, the recession, plus the pandemic, plus growing comfort with internet shopping is a triple blow. For malls that need to fill empty spaces, a few financial strategies are emerging. The most radical is to waive a fixed rental entirely, instead charging a percentage of turnover. Traditionally, the banks who finance mall-owners shun such a move, as the certainty of fixed rentals is replaced by the uncertainty of success. A lower base rental, with a higher turnover clause is more palatable. Another strategy is to encourage rather than penalise local businesses. Offer rental parity with the national tenants of a similar size, plus store design, display guidance and customer data. If anchor tenants take up at least half the space, the risk to financiers is reduced; whilst the community turns out to support quality local offerings. As retail data analytics become more reliable and granular, rental can be determined by the mall’s pulling power, with a combination of off-line and on-line spend.

Creative entrepreneurs crave routes to market. They need to try, fail, try better, without betting the farm. Mall-owners with empty space and open minds can offer a co-retailing version of co-working. And give their community a curated mix of fashion, beauty, well-being and food creators, sensitive to local tastes, in a space where a national chain used to pay the rent.

Malls & South African millennials
There are 14 million millennials in South Africa. 50% have jobs and 15% have university qualifications. They search for experiences, rather than acquisitions. According to the Deloitte Millennial survey, they are more responsive to a brand’s impact on society and the environment, than global counterparts. They value what is authentic and local. They are also digital natives. Offer localised, coupons limited to those that roam the malls. A sense of adventure transforms a dreary ‘have to’ experience to a ‘want to’ know what’s happening now.
Millennials are the malls’ future – it makes sense to invest in them.

Going back to the roots
The first covered mall in the States was conceived as a meeting place in the isolation of suburbia. The architect meant the mall to be a town centre in the suburbs. The original plan called for a town hall, police department, and library – but instead the developers opted for profitable big-box retailers. A police station in every mall would make crime easier and safer to report, a clinic and college would bring footfall and community benefit.

The built environment is a story of the past – in a present changing at bewildering pace. Malls, like office blocks, precincts, towns and cities, must pivot to meet new needs and challenges. They require new financial models, new insights, a different risk assessment and place vision. Before the ‘to let’ signs become overwhelming. Today, it is survival of the most adaptable. Tomorrow, as the field is thinned, as entrepreneurs and civic services breathe new life into them, malls can thrive once more.

Mike Freedman
Mike has reflected on 25 years of re-purposing places in ‘Changing Places’, a free download
www.changingplaces.freedthinkers.com

mike@freedthinkers.com
Freedthinkers facilitates new possibilities and liberates the latent potential for enterprises, places and spaces.