Vicinity Centres operates in a constantly changing retail landscape. Evolving consumer behaviours, the divergence in retailer performance, the expansion of international retailers and the increasing use of technology, are just some of the structural changes from which Vicinity is well positioned to capture benefits.
Being a leading owner, manager and developer of Australian shopping centres, we are highly focused on the evolving nature of consumer behaviour. There is a growing prevalence of dual-income families, the boundary between work and leisure is becoming increasingly blurred, and our lives are being filled with activity, creating lifestyles that are ‘always on’ and a generation of time-poor consumers.
Speaker: Justin Mills, Executive General Manager, Vicinity Centres
Rapid technology development is providing consumers with unprecedented access to real-time information on the pricing of retail items and a range of options of how to procure them, enabling consumers to transact at a time, location and price that suits them.
There is also a rise in ‘conscious consumerism’, an acknowledgement of globalisation and our resource constrained society, driving consumers to demand a more personalised and authentic retail experience.
Technology and the advent of social media is fuelling the demand for life experiences that can be shared via newsfeeds and broadcasts. But this is a double-edged sword for landlords. Both good and bad experiences can be shared instantaneously, reinforcing the importance of customer experience.
These trends go part way to explaining why some discretionary spending has more recently been diverted away from traditional retail stores. Vicinity’s response has been simple: to keep focusing on creating the most engaging retail experiences in our shopping centres and continuously evolving the tenancy mix by introducing better retail concepts as well as a range of lifestyle, dining, services and entertainment offerings in line with changing consumer preferences.
This focus on the consumer’s retail experience is evident throughout the key retail stage of our $666-million (Vicinity’s share: $333-million) Chadstone Shopping Centre development which opened recently. The impressive column-free glass gridshell roof encasing HOYTS’ Australian flagship digital cinema complex, a new 20-plus tenancy food gallery and new seven restaurant dining precinct, together with new international flagship stores, has been very well received by customers and retailers alike. The completion in mid-2017 of the expanded luxury mall and the 2,800m2 LEGOLAND Discovery Centre, the first in the Southern Hemisphere, will further reinforce Chadstone’s offer to meet the strong consumer demand for experiential retail.
Food and dining, services, lifestyle and entertainment will continue to be core pillars of our development projects going forward.
Our substantial $3-billion development pipeline (Vicinity’s share: $1.4 billion) and deep shadow pipeline also provide us with significant opportunity to introduce new concepts and to deliver exceptional in-centre experiences for our consumers and retailers that cannot be replicated through other retail channels, like online.
While development assists in improving individual asset performance, Vicinity is also focused on the performance of our portfolio more broadly. Landlords with the most resilient centres in their catchments will be rewarded over time with higher occupancy and stronger sales growth. A major focus for Vicinity over the past year has been our c. $1.5 billion asset divestment program which is now largely complete. This has enhanced the overall quality of the portfolio and is reflected in the improvement across key property metrics. It has also allowed us to focus our resources on centres that are better positioned for longer term growth and opportunities in this changing retail landscape.
Changing consumer preferences have also played a role in the divergence in retailer performance and this is being reflected in retail sales and tenant demand. Across our portfolio and over time, we have been proactively changing the product mix in our centres to reflect consumer demand. Spa treatments, yoga classes, manicurists, teeth-whitening, masseuses, dining and cinema, to name a few, are increasingly common activities being offered in shopping centres recognising their ability to compete for consumers’ time and many of which have not historically been found in shopping centres. In fact, over the past five years we have up-weighted our portfolio exposure to cafes, food courts and restaurant categories by 20% and retail services by 32%, while down-weighting to women’s apparel by 12%.
International retailers have also been actively expanding in Australia, particularly luxury brands who have recognised the impact of globalisation and social media on Australian consumers’ demand for foreign brands. Macquarie Real Estate estimates that there is ~180,000m2 of incremental GLA demand from international retailers for space in Australian malls.These popular retailers provide multiple benefits for Australian landlords, generating strong traffic and sales growth, while also providing broader anchor tenant options for our developments.
Technology is also playing a role in the divergence of retailer performance, most notably through online retail. The near double-digit year-on-year growth of online shopping in Australia demonstrates that this solution goes some way to addressing the underlying demand from time-starved consumers for convenience. Australian online retail sales however, represent just 6.5% of total retail sales which is relatively low compared to the US (8.3%) and the UK (14%).
Domestic online sales will inevitably continue to ‘catch-up’ relative to their international peer set with strong growth expected over the medium term, however the lack of population density, tyranny of distance and high relative labour costs will present some challenges.
Indeed, the online experience is not yet easy enough for Australian consumers who are still faced with a limited product range with expensive and slow delivery. Furthermore, online retailing is likely to face headwinds from impending Federal Government legislation that will see GST applied to all foreign online purchases made by consumers from 1 July 2017.
There has been a lot of speculation recently over Amazon’s potential entry into Australia. We view this as further recognition that the Australian consumer demands a better online retail experience. Incumbent retailers who are proactively adapting their strategies to create a well synchronised physical and digital presence will be able to compete effectively when new entrants like Amazon enter the Australian market. We are already seeing retailers, especially in the Department Store and Discount Department Store space, adopting more consumer-centric strategies.
Retailers that have a well-established physical presence across Australia will be better placed to fulfil online orders and those who do not adapt quickly and effectively enough to consumer trends will not survive.
We are also excited about the significant opportunities that technology provides across the Vicinity portfolio and we have invested in digital capability to enable us to proactively address consumer trends. By the middle of this calendar year, we will have connected all of our centres and corporate offices to the one high speed digital network with Wi-Fi connectivity throughout. The data captured will provide us with insights to develop a more meaningful and closer relationship with our shoppers, while also enabling us to make better operating, leasing and development decisions.
Consumers are increasingly merging their physical and digital approaches to retail, and through our connectivity project we are striving to make this a seamless experience for visitors in our centres. As digital technology progresses, we will utilise it to address consumer pain points and transform centre usability in areas such as parking, way-finding and personalisation.
Currently, we are using technology for portfolio enhancement and to generate operational efficiencies. We have successfully deployed robotic cleaners in several assets and are trialling Australia’s first automatic rubbish bins at Chatswood Chase Sydney and Chadstone which have the potential to reduce the frequency of bin empties by 75%. These are just two of a broad range of initiatives we are trialling, and they have demonstrated strong efficiency gains.
The advancement of solar technology also presents a significant opportunity for not only efficiency gains, but also environmental ones. We recently completed our largest solar installation to date at Ellenbrook Central in Western Australia. We are very excited about the possibilities that technology advancements will offer across our portfolio of 75 shopping centres.
In line with investor and community expectations, Vicinity has established a strong sustainability program which has recently been recognised in three key surveys. CDP rated Vicinity ‘A-’ for climate performance and the company was awarded ‘Best Climate Disclosure by a New Responding Company 2016’. The Dow Jones Sustainability Index (DJSI) included Vicinity in three leaders’ lists (DJSI World, Asia Pacific and Australia). In the Global Real Estate Sustainability Benchmark (GRESB) survey, Vicinity scored 83 out of 100, compared to the retail sector average of 77.
The role that our centres play is critical to the long-term success of our communities. This year we entered into a three-year partnership with the Beacon Foundation to develop youth employment programs and helping Vicinity to build stronger communities.
Finally, in a back drop of a constantly changing retail landscape and an expectation that the broader economy will continue to support domestic retail spending growth, Vicinity is well positioned with a consumer-led focus and a strong portfolio.
With Vicinity’s highly engaged team, commitment to ongoing portfolio enhancement including delivering on its extensive development pipeline and its investment in technology to help create better retail experiences, we remain confident of the future and the role we will play in it.