Singed on the boilerplate

Once upon a time retail property research hummed along year after year, just like the industry it supported.

As shopping centre floorspace expanded at a steady clip and geography provided a measure of protection from competitive forces outside, research became cookie cutter and a bit somnolent.

A market analysis for a new centre or the expansion of an existing one was a formulaic affair, based largely on defining a trade area, quantifying the total retail spend within its borders, and determining the appropriate share of that spending that the new floorspace could reasonably be expected to achieve. Market researchers in Australia could frequently get away with this because the retail tenants were predictable.

Fundamental retail formats and centre configurations never changed (partly because the property researchers themselves never advocated any changes) and there was no e-commerce messing up the spending estimates by leaking sales out of the trade area or bringing in sales from outside.

But times have now changed and market researchers are being singed on their own boilerplates. Globalisation and the technology revolution have created new challenges for retail researchers and new opportunities for them to add value or become dinosaurs.

What are some of these challenges and opportunities?

First, sales forecasting for international retailers (and therefore for new shopping centre space) requires a new set of techniques. A retailer’s performance overseas will not necessarily be replicated in Australia.

Across countries, there are differences in average sales density, competitive intensity, retail formats, real estate quality, income profile, lifestyles and psychographics. The researcher needs to parlay the retailer’s overseas experience into the Australian context with an appropriate analysis of all these factors.

After quantifying the performance of a new retailer it becomes necessary to quantify its impact on co-tenants. A good advisor will also be able to provide insights into how those co-tenancies should be fine tuned.

Second, new retail concepts create new markets, they don’t share existing ones. Traditional retail spending analysis is essentially backward-looking in that it assumes the local market for a product is more or less fixed according to existing market data.

As a result, it will tend to underestimate the performance of an innovative new retailer. (An insider at Limited Brands in the US once told me that if the sales forecast for Victoria’s Secret had been based on a share of the lingerie market, VS would never have been launched as a brand.)

Third is the influence of global retailer store footprint preferences on shopping centre configurations.

At the mercy of traditional shopping centre business models (thou art a sub-regional centre and so thou shalt have two supermarkets and two discount department stores) and archaic planning concepts like “retail hierarchies”, shopping centre research in Australia has had a hard time evolving.

Fourth is the effect of technology on trade areas. Retail property research has been obsessively focused on e-commerce penetration by category and how that should affect shopping centre tenant mix.

Should we have the nth fashion boutique or home entertainment store? Some of the most innovative retail store concepts emerging around the world are in categories that are supposedly “threatened” by e-commerce. (For example, check out fantastic book store concepts like Eslite book in Asia.) So to base shopping centre merchandising decisions on high altitude e-commerce metrics risks throwing the baby out with the bathwater.

There are more relevant things to be considered. Omni-channel retailing means that stores are becoming more multifunctional than they were in the past. They will be increasingly used as:

– Transactional sales channels (the traditional role of store as store)
– Pick up locations for merchandise ordered online
– Shipping fulfillment locations for merchandise ordered online (store as warehouse)
– Online ordering location for merchandise not available in the store itself (store as e-commerce transactional channel)

These new roles alter the logic of store location. Stores will want to be in dominant locations, but incremental locations may depend as much on logistics and proximity to transportation hubs as they do on foot traffic going by the front door. This will affect not just decisions about new stores, but also decisions about whether to close existing ones or keep them open.

Fifth, the shopping centre trade area itself must be analysed differently to what it has been in the past. The trade area will no longer be dependent exclusively on drive times, physical barriers and local competition, since a material amount of business will often be generated from customers beyond the bounds of the traditional catchment.

Conversely, there will be some leakage of spending out of the trade area via e-commerce. Under these circumstances, sales forecasts for the retail store or shopping centre based on traditional sources and methods will be much more error-prone than in the past.

These five examples demonstrate how market researchers and property economists must do more in the future to add value to retail real estate. Shopping centre operators and retailers must absolutely demand it of us.

*Michael Baker is principal of Baker Consulting and can be reached at and



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