Casuarina Square in the Northern Territory and Melbourne Central and Highpoint Shopping Centre in Victoria. IRW: How did your half-yearly results go and where do you see the business going this year? VO: “We’re doing over $11,000 a square metre across the portfolio and a number of assets are doing greater than $11,500 a square metre. We’re seeing really strong sales productivity. When you look at sales growth and sales productivity, the growth across the portfolio was 5.2 per cent and then spec MAT growth was 2.6 per cent. We did anticipate a softening, given we’ve had two really strong years of sales growth. So we really felt that in October, November and December, we thought December would have been stronger than it was. In terms of leasing, we’re still seeing strong demand from domestic and international retailers. There are still overseas retailers that aren’t yet in the Australian marketplace looking for space and they’re exciting brands. I think we’re going to see more consumer and content brands wanting physical spaces, so I think the demand for space is there, but they’ve got to be assets that are highly productive and sit in strong catchments. There will still be consolidation in retail, but our portfolio – like Melbourne Central, Highpoint, Rouse Hill, Charlestown, Casuarina – they own the markets they’re in, so we’re still seeing strong demand from retailers. In regards to income, we reported 3.8 per cent like-for-like income growth, so that’s still strong growth that we’re getting out of the retail portfolio. It’s been good. We’ve just signed a deal with JD Sport at Melbourne Central and Highpoint. I think 2017 will be challenging and I think this is where the partnering with retailers comes into play, because that’s the only way you’ll be successful – you need to really understand the retailer, what drives the business, the customer and share that information.” IRW: What developments are you particularly excited about this year? VO: “We’ve got Sunshine underway and that’s due for completion in late 2018. That will bring David Jones and Big W to the Sunshine Coast – a lot of those brands that are in Brisbane – as well as some international mini-majors and some great specialty retailers. I think the great thing about Sunshine is it sits on Cornmeal Creek. Lendlease manages it and does the development. We’re working together to work out how we can provide a great community space. There’s talk of flying foxes and a great kids’ playground. That’s going to be exciting. Then we’ve got Rouse Hill’s $250 million development that’s progressing at the moment. We’ve launched the DA. Rouse Hill was ahead of its time when we built it and there’s a lot of conjecture around building a shopping centre that’s not a big enclosed air-conditioned box. We need to start building town centres and community centres – things that have heart and that’s been extremely successful for us. The challenge for us is that we don’t fall back into that same old thinking, where we think we need a mall anchored by a department store and it needs to be air-conditioned. The challenge for us is how do we push the next evolution of retail? I think the evolution is in leisure, entertainment and there are other elements that need to feed into that, like thinking about what the customer wants. We were talking today about customer tracking and understanding the mum who lives at Rouse Hill. How does her week evolve? On a Monday morning, what does she do? Where does she go on a Sunday night and what are all those places she visits? How many of those do we put into Rouse Hill so that all her visits can be made at one stop, so she’s not in a car on Saturday going to ballet, soccer, then doing the groceries and her nails. Instead, she could actually get into the car, park and get it all done in the one place. How do we start to aggregate a whole lot of other things to save our customers time?” IRW: What does customer tracking involve? VO: “There’s a tried-and-tested method where you’re literally going into the customer’s house, spending time with them and logging everything they do. You’re living their lives for a week. It’s right down to the grassroots. We try to understand the customer’s journey and behaviour and what they do. When you get a focus group, they’ve already come in with preconceived ideas and they’ve already made their minds up as to how they’re going to respond. But when you’re experiencing them in their daily lives, that’s when you get the essence of who they are and what they do. That will be a really important element to the Rouse Hill development. This is what Nestle is doing with the Kit Kat store. They were doing focus groups and testing Kit Kats but with the new concept store, they’re putting in new products to get a feel of how much of it moves and what the consumer is actually buying and liking and they’re doing that in live time. Then for us, it’s about getting out globally. Not just looking at shopping centres, but villages and what makes a great village or what makes a great high street, just to broaden our horizons and lenses. You cannot continue to operate by just looking at shopping centres. You actually have to go, ‘I’m going to look at a great streets, villages, communities and other facilities where people come together’.” IRW: How have shopping centres evolved over time and how have customer expectations changed? VO: “If you look at centres, the first thing you often see is a big wall or a car park. The evolution is that the retail is now spilling out outside, so we’re flipping them inside out. Retail is bleeding into carparks and footpaths and the majority of that has been food, so people want to go somewhere together, eat and be entertained. Now we need to actually understand the role that we play in the communities that we operate in and focus much more on them and understand the hearts and minds of those communities. At the moment, with globalisation and if you look at what’s happening with Brexit and Trump, there’s this view that people want to feel protected and safe and I think we can do great things with our spaces, where communities can come together and feel safe, protected and importantly, connected. How do we create spaces that people want to come to connect? I think that’s really important, because it’s not just about shopping anymore. People want to come and feel like they’re part of something. If you think of all the segments that we touch, we’ve also got the elderly, a lot of people who are living alone and want to feel part of something. There was a great concept at Charlestown Square called the guest experience team – most of them are retirees and volunteers and it just gives them a sense of purpose and they feel really proud. If you’re in your seventies and rattling around in your big house, it’s great to come to Charlestown once a week to work with a group of people, to give directions and talk to people. They love it. How do we provide spaces for people to connect and not feel the pressure to shop? If you look at shopping centres traditionally, you’d come in through the auto doors and you’d feel like you must shop and there was nothing else for you to do but shop. You’d walk through the doors, shop, then you’d go out and it was ‘see you later’. I think we need to become more than just a shopping centre.” IRW: What are some examples of great entertainment in shopping centres? VO: “You’ve got your traditional entertainment and leisure retailers like your cinemas, bowling, trampoline parks and lasers, but the role we need to play is around the curation of the space. How do we bring events and experiences to the shopping centres? At Highpoint,  we had The School of Life from philosopher Alain de Botton, which is around mindfulness, wellness and meditation. We brought The School of Life to Highpoint and we had 10 days of activations around health and wellbeing. It was really well-received. On social media people were saying, ‘Bring us more of this!’ We need to think about curation in our shopping centres. You’ll have the physical retailers that provide entertainment and experiences, but we need to provide things that are free as well, like The School of Life or an activation we did at Melbourne Central with a jewellery box and a real-life ballerina dancing in it from Pandora. The way we’ve marketed these shopping centres historically is not going to be the way we’re going to market them going forward. When it comes to Mother’s Day and Father’s Day, we really need to re-visit the way that we market our campaigns.” IRW: Now that a lot of international players are expanding across Australia, how do centres avoid looking the same as each other? VO: “Most people are well-travelled and if you haven’t travelled, you can travel on the internet, so everyone’s got a very global perspective of what the world looks like. I think you still need some of those great international retailers, but you need a ‘salt and pepper’ effect throughout the mall with unique retail. It doesn’t necessarily need to be your big golden mile – it can be in loading docks, garages or carparks. I agree – if you continue to have your core retail offering, it does become a bit vanilla and boring.” IRW: Now that a lot of stores are experimenting with different formats like pop-up shops, how does that impact shopping centres? VO: “The benefit for us is that we have these places that generate huge footfalls. You’re now seeing consumer brands like Kit Kat and Dyson which want to be in places where there’s strong footfall and I think content brands are seeing value in it too, like My Kitchen Rules and MasterChef. There’s value in those brands and they can generate even stronger value if they’re in physical locations. The format we’re seeing is retailers wanting to take larger spaces as well as temporary spaces, so mall merchandising is the new business revenue driver. They need to understand the trends and fads and bring them both into centres. You need the fads because that’s what people want to see. There are things that last two to three years and you need to acknowledge that it’s a fad that will go hard and fast and people want to be part of it. I think having them in casual sites is good. You can think, ‘It’s a fad, it’s OK, it can [eventually] go’. Then the trends are when you think, ‘OK, this is going mainstream, so how do we incubate and grow that trend into spaces?’ Kernels was all about flavoured popcorn and a great fad that lasted probably three years but it’s gone now. There was a massive rush on cupcakes awhile back and donuts too. Food is quite fad-dy, so you’ve got to be careful with the long-term and short-term food that you lock in.” IRW: How has the food trend impacted centres? VO: “Food and food courts were traditionally what you always provided in centres. What we’ve done now is that we’ve started to tier the food and the food experiences that people are after. So there’s the grab ‘n’ go tier where you think, how much of it do you need and where does it sit? It might be donuts and coffees that sit outside the supermarket, because it’s a grab ’n’ go as you walk out after shopping and it’s a treat for the kids. Then you’ve got to think about where you’re stopping and eating lunch but it’s a fast lunch, which is the role of a traditional food court. You need that because if you think of the amount of workers in a shopping centre, they’re not going to sit in a restaurant and have lunch there every day. But they will sit in the food court and grab something probably three or four times a week, so the role of the food court is still extremely important. That’s the mainstream element. Then you start to tier it up. You need that extended stay where people are coming for lunch or dinner and that’s where you’ve seen the evolution of food catering and the restaurant precincts that have emerged. There’s also an element around the distinctive and I think you still need food experiences that are iconic to your asset because that’s what will what make people travel to Highpoint or Melbourne Central – one or two distinctive offerings that get people on social media all the time. Social media is a big driver of food and that element is still quite important. We probably haven’t nailed the distinctive element as well as we could – yet.” IRW: Are you rethinking which food retailers you’re bringing in? VO: “It’s reconsidering the mix but also understanding that food doesn’t just sit in a food court or outside a supermarket. Food needs to sit in fashion and it needs to sit outside too. Food needs to complemented how the shopper is going to use a certain precinct.” IRW: How has your tenancy mix changed over the years? VO: “If you look at our retail mix over the last five years, we haven’t changed the gross leasable area (GLA) that we have for apparel. What we have changed is the GLA that’s weighted to food catering. It’s up 32 per cent and services is up 22 per cent. We’ve re-weighted our GLA based on the changing consumer. People are eating out more. McKinsey did a great report where they basically said that food is the new fashion and talked about millennials and how they consume. We need to understand our consumers and what they want. You’ll see the GLA weighting continuing to change – we’ll start to see more health and wellbeing and it’s constantly evolving. Health and wellbeing is on-trend right now, so where does it reach the tipping point when it becomes mainstream and how do you start to introduce it in the centre and what do you then sacrifice? You’ve only got a certain amount of space, so what’s the space that you sacrifice to bring the new space in? I think what you’ll see is that we’ve down-weighted apparel, which used to be a big portion of shopping centres and the mix is changing. If you look at apparel on a per square metre basis for us, it was up 5.5 per cent so you’ve still got some good apparel retailers doing some good strong sales.” IRW: What role does social media play in marketing shopping centres? VO: “There are two big user groups. The first group are the millennials and every decision they make is based on recommendations from their friends. Online shopping for them is not going to a retailer’s site – what they’ll do is go through all their social media feeds and if a friend has said they like shopping at X, they’ll click through to that through their friend’s endorsement. Social media is important because it’s the way millennials communicate and connect. When you look at the online shopper, the largest cohort is women over 40. So there’s a big proportion of women online with a lot of money or at home with kids, so I think we need to speak to them as well. There’s also the older generation that aren’t so tech-savvy but I think we can use digital to understand how they use the centre and make it a better experience for them.” IRW: Which retailers do you think are doing it right? VO: “From a department store perspective, Selfridges is fantastic, just in the way they market and use social media – I get little pings from them on my smartphone and every time I get a ping, I’m interested! H&M is a tried and tested good retailer. They’ve obviously established H&M here and they’ve got Cos and & Other Stories, but I think domestically, we’ve got some good retailers, if you look at the Country Road Group and what they’ve done with their databases and loyalty programs.  I think they’re a good business that adapted to digital the right way. Liberty the department store is so well-curated and I think that’s what people are looking for – different and unique curated products. I really like Liberty I could shop there all the time! Then there’s Neal’s Yard in Covent Garden – there are some great little precincts that are quite unique. So you’ve got Selfridges which is a big global brand, but then you’ve got Liberty, which is a small, bespoke, unique brand to London that hold a niche because they’ve got a really differentiated product.” IRW: What are some of the challenges of shopping centres? Is online shopping a big threat? VO: “I think shopping centres have more of a role to play in their local communities around creating experiences. Online is great when you’re time-poor. You can sit at home at night and shop online, but I think the role shopping centres play is around the touch, the feel, the experience and the connection. As humans, we like the social connection and whether or not you’re connecting socially and talking to people or just there individually, you still feel part of something. I think shopping centres have an extremely role to play in connecting people. Previously we connected people just through retail, but now we need to connect them beyond that with experiences and education. If you think about online retail, the biggest issue at the moment is that last mile distribution channel, so for us, it’s about how we can be integrated in their click-and-collect component. We’ve dabbled with lockers and our supermarkets do click-and-collect, but I think there’s something in that space we haven’t yet solved around distribution. We can be a distribution hub for online fulfilment. I think our role as a distribution hub is really important when you think about the location of shopping centres throughout Australia and the fact that most retailers are sitting in them. I think that’s a conversation we need to have with our retailers. Access exclusive analysis, locked news and reports with Inside Retail Weekly. Subscribe today and get our premium print publication delivered to your door every week.