With the decline of the department store in its traditional form a global reality, it’s not a controversial statement to say that department stores and shopping centres in New Zealand are facing strong headwinds.
Auckland has actually fared relatively well by international standards, where oversupply of floor space had resulted in significant store closures. But with the growth of e-commerce, the entry of stand-alone luxury stores and aggressive discounting from both local and international competition, there is a clear need for floorspace consolidation to improve sales productivity for the longevity of the sector.
The good news, though, is that with emerging retail players and consumer trends, those willing to reimagine their use of retail space can still seek to maximise value from their premises.
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While smaller store formats and narrower product ranges provide an obvious response to challenging times, a more creative opportunity is available to department stores seeking to test new avenues to drive sales and customer interest.
Subdividing space along the main arteries of foot traffic to accommodate clusters of complementary specialty retailers can allow stores to create a new stimulus for demand that could benefit both tenant and landlord.
There’s no doubt that this would require capital expenditure and downtime in the short term. However, introducing these quality new sub-tenancies could also drive a sustainable uplift in rental income and customer traffic.
Enhancing the retail experience
The scope for innovation is greater in shopping centres. While not necessarily suited to all locations, incorporating co-working spaces in shopping centres could work well in densely populated metropolitan areas, for example Newmarket or Sylvia Park. Co-working operators are typically committing to longer leases than specialty retailers and can drive foot traffic that supports sales for other retailers – particularly F&B.
The retail sector has become increasingly experiential-focused. The prolific rise of Esports in New Zealand is a prime example of this, with "gaming arenas" gaining traction across the country. Other examples of competitive socialising include virtual golf, VR rooms, "barcades", mini-golf and escape rooms. Incorporating these offerings within shopping centres increases dwell time, drives F&B sales and has a positive impact on late night operators.
Healthcare and childcare services also have the potential to play a more prominent role in the make-up of shopping centres. Convenience and accessibility, combined with additional retail and services available to consumers, makes this a compelling proposition. Providing these services can also drive foot traffic to support surrounding retailers.
And finally, the demand for last mile distribution centres is heavily outstripping supply in Auckland with the diminishing availability of serviced land in inner city locations. Vacant space in both regional and sub-regional centres could therefore be converted to meet this demand.
These are just some of the options available to retailers and investors to help plot a course through the sector headwinds. I believe there is a major opportunity for landlords over the next five years to repurpose low-rent-paying space into new exciting uses that are more relevant to current and emerging consumer trends. The conversion of this space could become the new form of retail supply for shopping centres to diversify the income profile, drive customer engagement and increase asset values.
- Nilesh Patel is head of retail at JLL
