2017: the awakening
The retail landscape in Australia has evolved more significantly in the last six years (and arguably in the last year) than it has in the last 30 years. I am transfixed, thrilled, intrigued and slightly nervous, if I’m honest, with the pace of change, the level of innovation, skill and speed to execution occurring in the sector. Everything ‘retail’ is at the epicentre of disruption and is certainly not an industry for the faint hearted.
Driving this disruption, as observed in Michael Klein’s presentation on Adobe and Retail, are empowered shoppers who value convenience, authenticity and experience. Michael states, digital is indeed transforming the way we think of competition, distribution channels and customer engagement.
At Mirvac, we are constantly reassessing the relevance of our retail assets, to determine if we have the right retail in the right markets. We are very much of the view that the right physical offers in the right locations will remain as relevant as ever in the customer journey, as Mark Twain quipped “the reports of (our) death have been greatly exaggerated.”
The rules of engagement have definitely changed, and retail is not an ‘either/or’.
Jack Ma, the founder of Alibaba, coined the term ‘New Retail’ to define (in his words) “the integration of online, offline, logistics and data across a single value chain”.
In the implementation of ‘New Retail’, companies such as Alibaba, and of course Amazon, have moved from being pure play online companies, to establishing physical footprints, and buying ‘on the ground’ successful retailers with store networks in key urban catchments. This strategy is being pursued by the ‘big guys’ as well as other entrepreneurial pure play retailers.
And why are they? It provides the opportunity to connect with customers, to collect rich insights, fine-grained data on consumer behaviour, an environment to explore and test product and services, drive community and brand loyalty, create a memorable experience – and this then loops back into a fine-tuning of their New Retail model.
And the ‘old world’ retail brands such as Walmart are acquiring online companies (Jet and Mudcloth); Nordstrom acquired Trunk Club and Hautelook. One format cannot be successful without the other.
Successful retailers realise that customers approach shopping as one connected journey – ‘retail is retail’. The customer doesn’t think through their journey as ‘should I shop online or at a store’. Last year, in the US, over 50% of product searches commenced online on Amazon. There is no longer one linear path to conversion.
Old and new friends
So – what does this mean for shopping centres? This is an era of enormous opportunity to recreate the 21st-century physical marketplace where traditional retail boundaries have quite literally morphed and merged into new alliances and the blending of offers. We are no longer just the place to sell goods and services, but an environment to provide the preferred and enduring human to human connection, with all its rich insights.
I recently heard for the first time the term ‘frienemies’. This is a new type of collaboration between businesses that once viewed each other as enemies but have joined forces to benefit from each other. It is evident everywhere with technology companies joining forces to develop concepts and products, to retailers who used to think of Amazon as an enemy. They’re using Amazon to sell their product, encouraging all returns to be brought back into their stores, hence creating opportunity to engage with customers and the potential to sell up. It also gives them access to new customers. Amazon in turn is working with retailers to place Alexa into certain product they sell in store.
Our ‘Experience Retail’ thinking and approach has created some great customer initiatives. For example, we could not have considered a few years ago that we would own and operate a ferry service today, deliver a free shopping nanny service or be about to launch our first voice-enabled customer interaction.
Voice, or ‘Conversational Commerce’ is the next wave. It is much more than a new interface or an additional channel in an omni-channel world. It promises to be a curator of services and experiences that intelligently meets needs and engage consumers emotionally – anywhere, anytime. (‘Conversational Commerce’ Capgemini 2018).
Integrated technology, the art of listening and savvy partners enabling new and shared insights
We recently trialled new research methodologies, leveraging digital technology for Broadway Sydney’s ‘Consumer Consulting Board’, replacing traditional qualitative research with an online, real-time community of Broadway shoppers.
In this example, our Skyfii team analysed the centre’s wifi database to select a set of appropriate shopper typologies with varying levels of engagement with the centre to ensure a strong representation of the community. Respondents could upload their centre experiences directly into the Community Board via an app. Utilising this approach delivered a high level of engagement with respondents over an extended period of time providing immediate, in-situ feedback into mix decisions, amenity and messaging.
We have sought out like-minded customer-obsessed businesses to form alliances such as Foodora, Tesla and Salesforce to help us develop connections and services.
For example, we partnered with Tesla to open Sydney’s first destination Electric Vehicle Super Charging Station at Broadway Sydney as well as rolling out 30 electric vehicle charging stations across a large percentage of our assets.
Applying innovative research techniques across our portfolio is enabling us to also create ‘frictionless’ experiences. Shopping Nanny is a great example of this ideation in process with customers.
In mid-2017, we successfully trialled and launched our new nanny service for busy parents. Shopping Nanny is a direct response to extensive research carried out by Mirvac’s award winning innovation program, Hatch. The initiative is the first of its kind in Australia and offers a personal, complimentary nanny for up to two hours. In our pilot centres, this has resulted in over a 4x uplift in the average spend of those using the Nanny service vs. average spend per visit.
Who doesn’t love a holiday?
According to Tourism Research Australia, tourists spent $10.3 billion on shopping the year to June 2017. This excludes the billions more spent on food and drink at cafes, restaurants and takeaway outlets. Sydney remains the most popular destination for both foreign and domestic visitors and tourism expenditure in Sydney increased by 9% over the previous year (ending September 2017).
Tourists prefer physical retail experiences, significantly over indexing in spend.
With 70% of Mirvac Retail’s urban assets located with a 15km radius of Sydney, we have aligned ourselves with key tourism and events bodies such as Destination NSW and Business Events Sydney.
Mirvac’s award-winning Shopper Hopper ferry service was a strategic investment to attract Sydney’s growing tourism market, transporting customers to key retail destinations at Circular Quay, Harbourside, and Birkenhead Point Outlet. Since its launch in 2016, the Shopper Hopper has hosted 12,200 guests from across Australia, NZ, Singapore, Malaysia, USA, Canada, UK, Hong Kong and the Philippines. It won Best New Tourism Business at the 2017 NSW Tourism Awards. In 2018, we are projecting another 16,000 Sydney visitors to use the service for a truly distinctive shopping and dining experience.
Re-imagining Mirvac Retail’s portfolio
Over the past few years, we have significantly reshaped and improved the quality of our retail offering. We’ve continued to strengthen our assets and evolve our portfolio through remixing, redevelopment and selected acquisitions.
We have recently nearly doubled our investment in capital expenditure, with a focus on creating great experiences for our customers. We believe you cannot succeed in this competitive environment unless you invest in your customer journey, from carparks, technology, to amenities, playgrounds, mall upgrades, and even a dog park!
We have also diversified our mix, where we are overweight to experiential uses that complement retail, including food catering, entertainment, wellness and non-retail uses. We have been very active in responding to key consumer insights on mix – over the last 18 months we have introduced more than 170 unique or new brands across our centres.
The results have been outstanding, with specialty sales to December 2017 growing by 5.2% and footfall growing by 3.1%.
The recently completed Birkenhead Point Outlet (Sydney) redevelopment demonstrates our approach to repositioning. We only added 125sqm, resulting in a significantly improved retail mix and customer experience with the introduction of premium international brands, household iconic brands, (e.g. Peters of Kensington), improved internal circulation and connections to carparks.
Toombul (Brisbane), which we recently acquired, is also an example of where we have invested capital to refurbished sections of the centre, added 200 undercover carparking spaces, improved precincts, secured 19 new retail brands, and 39 new fit-outs, resulting in a 14% uplift in traffic over the last 12 months. We are about commence the second stage of works (subject to approvals) that will see the centre repositioned as a modern entertainment, dining destination. Toombul was also the first to allow pets inside the centre with the introduction of a Petbarn.
Without a doubt, there are challenging headwinds expected in the retail sector, as the fast pace of structural change continues to sweep the market. Having said that, there are certainly a number of solid economic fundamentals that are benefiting the capital cities in the eastern states of Australia, where our portfolio is located.
2017 saw the best levels of employment growth in over a decade, driven by an upswing in full-time job creation. This is attracting more migrants than at any time before for NSW and Victoria, particularly from overseas. The South-East Queensland economy continues to strengthen and so too its reputation as one of Australia’s fastest-growing regions for population. And there are some early signals of better wage inflation to come with reports that employers are finding it hard to source the right workers.
Though the residential construction cycle is moderating, we are rotating to a non-residential and infrastructure boom which should cushion any slowdown. Mirvac is confident the major urban cities will remain the economic engines of Australia.
We do expect to see the continuation of retailer administrations, as the intense competition for consumers’ hearts, minds, and wallets continue. We believe that not all retail is created equal. There will be no room for complacency within this intense environment, and investment in ‘intelligent retail’ will be required to remain relevant.
A Microsoft note post the NRF Conference in New York last month nicely summed up intelligent retail as being “about ensuring customer engagement, empowering employees, and optimising operations. Channels and mediums are blurring, the consumer is morphing, and technology is shifting the dial on what is possible, and the when, where and how of retail”. Exciting times!
Mirvac is a leading Australian property group, listed on the Australian Securities Exchange (ASX). Mirvac’s investment portfolio has interests in office, retail and industrial assets, while its development business has exposure to both residential and commercial projects. With over 45 years of experience, Mirvac has an unmatched reputation for delivering quality products and services across all of the sectors in which it operates. Mirvac Retail owns and manages a dynamic portfolio of shopping centres across Australia’s eastern seaboard with total assets under management of over $4.0 billion. Incorporating over 400,000m2 of retail space and more than 1,600 retailers, Mirvac’s centres have strong positions in their local markets with geographic, retail and economic diversity. The centres are individually branded, marketed and positioned to suit the specific needs of its customers in each of their unique catchment areas.