The Future of Shopping Districts

Retail is important.

Not only for the economy, but also for the health of towns and cities on every continent. For example, retail accounts for more than a quarter of all commercial real estate in Europe. In 2014, €48.7bn (US$53.7bn) was invested in retail assets in 26 European countries.[1]

But going to a physical shop is no longer the only way to acquire the things we want. The growth of online shopping has already transformed the world’s largest retail markets, and will continue to do so. Between 2016 and 2019, e-commerce’s share of total retail spend will grow worldwide by 49%, from 8.6% to 12.8%.[4]

China is perhaps the most dynamic retail market in the world.

“Brick-and-mortar retail in China has grown quickly, but nowhere near as quickly as the Chinese economy,” says Bryan Gildenberg chief knowledge officer at analyst Kantar Retail. “Through the digital ecosystem that consumers now had in their hands, they could access a branding ecosystem that they couldn’t buy in their towns. This is particularly true for the 1.3 billion out of 1.4 billion citizens who don’t live in Greater Beijing, Greater Shanghai or Greater Guangzhou.”

We no longer have to go outside to acquire the things we want. So why do it?

We are now in an “experience economy”.

“In the West, we have probably hit peak stuff”

Steve Howard, head of sustainability, IKEA 

The relationship between off and online shopping is a lot more fluid than previously thought. 90% of retail sales still involve some contact with a store, even if they do not go through the cash register.[10] “It might be through a mobile device of your own or of the store’s while you’re in store, or you might purchase online and collect in-store,” says Ed Cooke, chief executive of UK retail industry body Revo. “And that doesn’t take into account the wider marketing role that a store plays. Although their function might be changing, stores are still the absolute epicentre of retailing.”

Jamie Murray Wells, industry head of retail at Google UK, agrees: “Our research shows that for every mobile sale that we send a retailer online, we’re also sending four people to their stores offline. Which is huge.”

85% of consumers report they like to shop in stores because they want to “touch and feel the products” before buying decisions.

If an item was available in a nearby store, online or on a mobile device, 71% of consumers would opt to buy it in the store. Just 3% would buy it via a mobile device.^[11]

As retailers must sell an experience rather than a product, a physical presence becomes even more important to their brand — even essential. Apple is an example of a retailer that seeks to sell its “culture” through its stores. “Apple could easily sell its products on the internet but selling that culture has made all the difference to its profit margin,” says Chris Lanksbury, director of architect Chapman Taylor. “People are not just shopping to buy things at the cheapest price. They’re buying into something else.”

“We know that 80% of people are more than comfortable with ‘showrooming’ — looking at their mobile phone when they’re in the shop, even to the point of purchase. A third are actually more comfortable doing that than talking to a shop assistant”

Jamie Murray Wells, Google UK

When everyone’s competing to offer a great experience, how do you set yourself apart and earn customer loyalty?

“As the shopping experience becomes more of a leisure activity in its own right, you’re competing with films, music, theatre, dining out … So shopping is just one part of the whole leisure and lifestyle equation,” says Ken Christian, director at design consultancy CallisonRTKL.

“The ‘wow’ of putting leisure into shopping centres has been around for a long time. But with traditional leisure elements you still tend to go and use them, and then leave. You have to go beyond that to make it more personal to the community. That’s about authenticity. What is interesting about that particular location? It might be a farmers’ market selling goods that are grown or manufactured locally, or a roof or skip garden where school kids can go and see how carrots or potatoes are grown.”

This means not being a clone. In the past, there was an assumption that if high streets offered the same national and international chains as the shopping centres, shoppers would come. The resulting “clone towns” hardly offer a compelling experience. “There was nothing unique,” says Christian, “and as a result no emotional link. You didn’t have any local attachment to the authenticity of the place.”

Food and beverage is the most important weapon in a shopping district’s arsenal because you can’t share a meal with friends on the internet (yet). “We have to give people layers of experience now, and food and drink plays a huge part in that,” says Jonathan Doughty at JLL Foodservice Consulting.

And it’s not just a diet of the same old chains. “Customers are saying they’re bored: they want more choice, more breadth. All around the world, people are on a voyage of discovery. The more widely we travel, the more diverse people’s food and drink requirements become — they want to bring home what they’ve experienced on holiday.”

The public spaces in between are just as, if not more, important.

“It’s about social spaces that happen to have shops or restaurants or cinemas,” says JLL’s Jonathan Doughty. “Shopping centres are becoming more like town or city centres, with all the things that they offer. Places like Westfield Stratford, Puerto Venecia in Zaragoza or La Maquinista in Barcelona have almost turned themselves inside out.”

“Pop Brixton is one of the coolest retail environments in the UK right now. It is an amazing blend of community-focused retailing, food & beverage and performance venues which are supporting jobs, training and enterprise. Not a shopping mall, but a collection of local entrepreneurs coming together to create a great experience” 

Ken Christian, CallisonRTKL

Shopping experiences will also be more tailored to very specific demographics.

Over-60s in the developed world will generate 19% of global consumer spending between 2015 and 2030. This is more than the whole working-age population of China [15]. Shopping destinations will have to adapt to accommodate this lucrative market. PXL University College in Belgium studied how supermarkets could be designed for older consumers and found they wanted stores to be easily accessible, with wider aisles, lower shelf heights, non-skid floors and easily manoeuvrable trolleys, good lighting, larger print labels and clear, obvious signage.

78% of millennials prefer to spend money on an experience than goods. [16]

Millenials, now aged 18-34, may have less money to spend now, but culturally they are incredibly influential. “The thing about millennials is that they still buy the bulk of their consumer goods in a shop, even though they’re incredibly well connected digitally and could buy anything they could ever want online,” says Christian. “They crave and pursue the social experience of going out with their friends and sharing it on social media.”

Rather than designing shopping centres around function or anchors with mass appeal, operators of different kinds will be clustered to create zones that cater for specific user groups. So clothes for babyboomers will sit next to quality dining options, teen fashion next to snack foods, and grocery shopping next to daycare facilities.

Teen fashion retailer Brandy Melville sells its clothes in just one size and doesn’t do traditional advertising: it has built a 21st-century uber-brand almost entirely through Instagram.

Shopping destinations must offer constant novelty.

A continuously changing mix of brands, food stops and special events — so no visit is ever the same. “As an activity, leaving home is losing share to staying home,” says Bryan Gildenberg at Kantar Retail. “So we would expect to see significant consolidation in the spaces that people leave home to go to. Retail businesses will diversify into healthcare, entertainment, education, nail salons, pet care … Why wouldn’t 500 Walmarts turn into daycare centres?”

Some retailers are experimenting with pop-up formats to keep their offering fresh, either within existing stores or in new locations. US department store Nordstrom, for example, runs curated monthly events under the Pop-In@Nordstrom brand. They might be themed — previous themes include road trips, France, poolside glamour and community — or organized in partnership with brands such as Nike, Topshop or Aesop

In 2015, Swedish fashion giant H&M popped up on London’s trendy Brick Lane for just six weeks, with a specially curated clothes offer and subtle indie-style branding.

Behind the scenes, the supply networks that serve shopping districts are changing too.

Retailers need to offer a constant stream of new products, and have it available in every size, every colour, every store, all the time. Or they could just keep it all nearby, ready to be called up at a moment’s notice …

Advances in technology have made freight logistics more efficient, reducing the overall number of delivery vehicles required. But the frequency of deliveries is starting to increase. “The typical weekly or bi-weekly deliveries to towns or shopping centres still go on,” says Richard Jones, director and retail logistics specialist at WSP, “but with click-and-collect, customers want to pick goods up the next day or even the same day. So there’s a larger network of smaller vehicles taking goods to stores from distribution centres.”

To manage traffic congestion, local authorities and property owners have begun exploring freight consolidation, where deliveries from many suppliers are centralized in a hub on the edge of town, and then combined in a smaller number of delivery vehicles. Deliveries to store can be made using electric — or  autonomous — vehicles, and planned to avoid peak hours. Trained drivers and specially adapted vehicles could go into sensitive pedestrianized areas. And instead of returning to the consolidation centre empty, they could take back packaging and other waste for recycling.

Consolidation centres could be used as click-and-collect pick-up points, perhaps next to park-and-ride schemes: “You could jump on the bus into town, walk around the shops and buy goods on your smartphone. All of the goods are picked at the consolidation centre, so that by the time you get back, they’ve been delivered to your car,” says Jones.

Or distribution centres might come to us, suggests Chris Lanksbury at Chapman Taylor. “They could become anchor tenants within a shopping centre. You could buy a product online and go to the shopping centre to pick it up.”

And if retailers can call stock up quickly, they don’t need large stock rooms: with freight consolidation, large retailers at Meadowhall in Sheffield can operate from an on-site stockroom of just 1-2% of total floor area, rather than 30%.[22] “Most brick-and-mortar stores will have less space devoted to products, which means they have more space to devote to something else,” says Kantar Retail’s Bryan Gildenberg. “That’s the fascinating question that retailers and developers are going to have to answer: what’s that something else?”

Fewer deliveries and cleaner power means fresher air — and that’s important for wellbeing. Wellbeing has been described as “the new sustainability” — but that’s significantly underselling the pace at which it has captured the corporate imagination. Since the World Green Building Council published a landmark report in 2014 on health and wellbeing in office environments, the financial benefits have won it a global fanbase.

For retailers, wellbeing could become another point of differentiation. The UK Green Building Council has developed a framework for analyzing the impact of factors such as air quality, daylight, acoustics and landscaping in retail environments. And the WELL Building Institute has established a pilot standard for retail, which is being trialled at a branch of TD Bank in Maryland.

“The millennials are living up to their reputation as disrupters. They seem focused on their health, and use technology to chronicle their every movement — up to 75% monitor their daily activities. I think we’ll see more yoga studios, athleisure retailers, spas. Outdated spaces present an opportunity to create wellness zones, activity centres and collections of health and wellness product lines within existing shopping centres”

Stan Laegreid, MG2

We are on the cusp of a data revolution.

What if you could attach a tracker to every customer and find out where they live, where and when they shop, what they buy and how much they spend? How would that change the shopping environment? We are all leaving a growing trail of data through our bank cards, where we go with our mobile phones, what we look at on the internet, what we watch on television …

Retailers will be using this data to target customers ever more precisely with offers. These can be delivered directly to smartphones using beacons — low-power Bluetooth devices that broadcast to phones that come within range. In 2021, the number of beacons worldwide will hit 500 million.[23] Retailers and restaurants account for 77% of all beacons and 81% of all beacon activity.[24]

This data can also be used to create more successful shopping environments. Anonymized pedestrian flow data is already used to plan developments: how transport interchanges should be laid out to avoid congestion, how many lifts and escalators will be needed and where they should be. “It’s about better designed buildings,” says Adam Selvey at WSP. “The more data we can gather, the more efficient we can make the retail experience, and we can start to drive efficiencies in the design.” Pedestrian data could also be used to plan where retailers sit within a shopping centre: “Start analyzing your pedestrian flow, understand it properly, and you can revise the leasing plan to drive footfall.”

Big Data could also enable social landlords to set fairer rents. Contracts based on store turnover no longer work in an omni-channel world, when footfall may translate into online or mobile sales. “With Big Data analysis it is possible to assign a value to the time spent by customers in the mall or in a single store and calculate the rent of a commercial property from that,” says Lorenzo Gallosti of WSP. “We’ve developed a footfall-based model, which takes into account tenants’ standard revenue, operating margins and pedestrian flow. The underpinning algorithm is a complex combination of the number of visitors and cumulative shopping time that links historical and real-time data, making it nearly impossible to misrepresent reality.”

Using this technology across a whole city would be even more powerful. “The retail plan of cities changes as there is new development in different areas and streets become weaker and stronger,” says Selvey. “If you could take the footfall systems that are installed in shopping centres and overlay them onto the retail district of a city, you could analyze the streets and decide how to strengthen them. Say we have the tracked flow for a KidZania, we could look at the ripple effects — what would it do to the traffic coming in and the flow through the city?”

Globally, there are 5 billion mobile phone subscribers. 80% of the mobile phones sold in Q1 2016 were smartphones.[25]
86% of the world’s smartphones use Google’s Android operating system. 13% use Apple’s iOS.[26]

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Notes

[1] The Socio-Economic Contribution of European Shopping Centres, [2] World Bank, [3,4,5,6] eMarketer, [7] PwC Total Retail 2016, [8] AT Kearney Connected Consumer Study 2014, [9] Mintel’s American Lifestyles 2015, [10] Revo, [11] TimeTrade State of Retail 2016, [12] Jonathan Doughty, JLL Foodservice Consulting, [13] La Maqinista / Sergio Flores / Wikimedia Commons, [14] Pop Brixton / Su-May / Flickr, [15] McKinsey Global Institute,  [16] Harris Poll survey 2014, [17] The Blind Barber, New York, [18] Visualization: Chapman Taylor, [19] McKinsey & Company, [20] Revo, [21] Visualization: Making Better Places: Autonomous Vehicles and Future Opportunities, WSP / Farrells, [22] Freight Consolidation and Remote Storage, WSP and BCSE Educational Trust, [23] ABI Research, [24] Reveal Mobile, June 2016, [25] Ericsson Mobility Report Q1 2016, [26] Gartner, Q2 2016