“It is becoming harder and harder to get a mall right,” says Allan Soo, Managing Director of Savills (Malaysia) Sdn Bhd, pointing to the Klang Valley mall landscape as the best example. There are 155 malls providing approximately 56 million sq ft of retail space for a populace of 7.3 million. Soo believes that this ratio of 7 sq ft per capita is way too high and both retailers and mall operators must be sensitive to various factors in order to handle what is essentially an oversupply of mall space.
Soo says that there are a number of mega-trends that investors must be aware of. The first is the all-important ‘consumer trends’, to which Soo quickly highlights that it is the millennials who have taken center stage as the next generation of consumers. He tells mall operators and retailers to be mindful of millennials’ consumer traits. He says they are highly tech savvy and not at all influenced by mainstream media.
Millennials are not brand loyal and rely heavily on social media to guide their purchasing decisions. “They also like to share their experiences on social media,” underlines Soo, “so malls these days must provide internet connection.” The availability of Wi-Fi and attendant services such as Apps will determine if millennials will be drawn to the mall.
THE ONLINE BEHEMOTH
A key factor that must be tackled is the availability of online shopping platforms that have proven to be so successful in recent years. Soo says these platforms inevitably will affect the success of brick and mortar malls. He uses the success of Ali Baba and Zalora as key examples, pointing to the fact that the former is the world’s largest retailer today. Ali Baba recorded its highest single-day receipts on 11th November 2015 when US$14.3 billion sales were achieved. Soo points out that it would take Kuala Lumpur’s most successful retail mall, KLCC, over a quarter of a century to match that amount of sales.
Soo makes the prediction that social media site WeChat will soon have a similar impact and may even overtake Alibaba as the world’s number one shopping portal. He also asks that mall operators and retailers be mindful of changing consumer trends in this regard. He uses a personal anecdote to highlight this saying he receives an average of a couple of parcels per annum, but his friend in Tokyo receives up to five parcels daily! Online shopping is here to stay and will affect mall performances.
Soo also counsels that mall operators must look closely at fashion trends and how quickly trends can change. Fashion is turning younger, cheaper, faster and trendier. Classic luxury brands are reinventing themselves as social media continues to play a huge role in impacting tastes and trends.
Hence, Soo says mall operators must do in-depth research to ensure they have the right data to ensure they identify the right tenants. Get this wrong and mall operators could end up with second-class tenants, thus impacting the overall feel and perception of the mall. This will have a pronounced effect on the type of customers the mall will attract, their spending power, and ultimately, turnover and rental rates.
RESEARCH IS KEY
Soo points to several determining factors when deciding on the building of a new mall and the first is the density of population. He believes that generally speaking, there should be a population of about 80,000 within a five minute’s drive from the mall’s location. For the mall to have a good chance of succeeding, the surrounding population should also have an average combined household income over RM6,500 per month. Total household income for the area should exceed RM600 million per annum for sufficient support of the mall.
The next step is to calculate retail turnover as that will determine rental rates. Soo says that the average turnover for city centre mall is between RM100 to RM180 per sq ft / month, while a mall in the suburbs records an average of RM45 to RM85 per sq ft / month.
The next phase is to have customer exit surveys which are very important in establishing various crucial factors such as median household and individual incomes, alongside crucial data on spending habits, preferred brands and expectation levels.
Soo believes that with rentals reaching a plateau and the oversupply of mall space in the Klang Valley, the need for mall planning becomes even more important. Developers must take into account positioning, sizing, layout, configuration and the trade and tenant mix.
He also says that mall operators must be aware of retailer strategy and plans as well as global direction to ensure continuity and profitability. Accommodating affordability, as well as market requirements, will require constant monitoring and adjustments to ensure that the mall has the right mix and balance to continue attracting the right consumers.
This article was first published in the iProperty.com Malaysia December 2016 Magazine. Get your copy from selected news stands or view the magazine online for free at www.iproperty.com.my/magazine.Better yet, order a discounted subscription by putting in your details in the form below!