Maturing market
Published: 22 July, 2010
Commercialisation can deliver strong returns for shopping centre owners, but industry experts point out that it’s not free money – landlords need to invest in both the physical infrastructure and in the management systems to make it happen.
According to Ross McCall, head of retail commercialisation at Cushman & Wakefield, when done properly commercialisation revenue can reach 6-8 per cent of base rents on a covered centre, and 2-4 per cent on an open-air scheme. And it could go higher. “In the US they typically achieve higher returns, while Australia is at a similar level to the UK,” says McCall.
And he points out: “As a generalisation, the rest of Europe tends to be under-commercialised. It’s a massive opportunity and it’s an area where the UK has the expertise to export.”
McCall believes this reflects the relative maturity of commercialisation in the UK. “There’s now a lot more science behind it,” he says. “We plan activity properly every year, as part of the asset management process.”
And Sian Nicholls, marketing and commercialisation manager at Savills, agrees that commercialisation has gone up the corporate agenda. “It’s no longer up-and-coming, it’s a mainstream part of the management function,” she says. “The agency and investment teams have woken up to it, and landlords are more aware of the opportunities.”
She says investors now look for both long term rental streams and temporary income streams from RMUs, advertising and events, but she points out: “RMUs and events provide good income, but you have to keep replacing it.”
And Nicholls believes that, if anything, the recession has made commercialisation more management-intensive: “Ad spend generally has shrunk, but in RMUs and catering units we’re seeing more start-ups on the back of redundancy packages.”
And she warns: “New startups need a lot of hand-holding.” As a result she dedicates one day a month to a clinic for new suppliers, helping them fine-tune their business concepts.
Cushman & Wakefield’s McCall also detects a new willingness among his clients to invest in commercialisation. “Landlord funding has been available over the past two years, but probably not at the level we’d like. But there seems to be more available now.”
As an example he points to fund manager Hermes, which has just agreed to replace and upgrade the RMUs in all of its malls. “That’s a positive sign,” says McCall, “and we’re looking at designs now.”
This sentiment is echoed by Mark Trickett, UK sales manager at RMU manufacturer Unicam. “Orders have been low over the past two years, for obvious reasons,” he says. “But we’ve been quoting, seeing clients and taking more briefs lately so we think the market’s more active than it has been. The sales process just takes a lot longer than it used to.”
And Trickett says Unicam has modified its product lines to meet the changed expectations of centre owners and operators.”In response to the changed market we’ve come up with modular, flexible designs that are innovative and competitive,” he says.
And as landlords, frustrated by the standstill in the development market, begin to look at refurbishing existing properties as a way of driving growth, McCall says commercialisation experts are being brought in at the design stage of projects. “We can advise on the services required, on sightlines and so on,” he says.
But McCall warns that only the larger centres can justify the expenditure needed for a full commercialisation package. He estimates that across the 40-strong Cushman & Wakefield portfolio, only 15 centres could support the full package.
And there’s a human factor to take into account as well. “It depends on the centre management, the level of resources on-site and the degree to which the people on-site buy into it,” he says.
He warns: “It’s no longer enough just to put out a poster or roll out an RMU. You have to run commercialisation like any other element of managing a centre, be it security or cleaning.”
Alongside the continued growth in RMU leasing, the industry is seeing renewed interest in experiential marketing, especially where brands can see a direct correlation between promotional activity and sales in the stores.
McCall cites Vodafone as an example of a brand that has woken up to the promotional power of shopping centres. And every mall has a plethora of stores where Vodafone’s products can be bought.
“We can target demographics very accurately,” says McCall. “For instance if you wanted ABC1s between the ages of 21 and 35 you’d go into one centre, and into another if you wanted a different group.”
Mall activity is the traditional speciality of spaceandpeople, and director Nancy Cullen believes a number of factors are helping drive the growth of her business. “There’s definitely a trend towards making the mall the shop window,” she says. “And with the growth of online retail, shopping centres are recognising that they have to deliver something different.”
She believes landlords are becoming more receptive, but warns that experiential marketing has to be a managed process.
Like Vodafone, Cullen cites EA Games as one of the best exponents of mall marketing. “They go into the large centres for six weeks every year now. They’re not selling, but it’s great for brand awareness so their stockists win too,” she says.
Equally L’Oreal holds demonstrations in malls, which directly drives sales of its products in retailers like Boots and Superdrug.
And looking ahead Cullen sees demand for total marketing packages, with mall space supplemented by banners, a web presence and poster sites as well. “It’s all about saturating the centre,” she says.
Mobile phone manufacturer Siemens conducted an experiment at Meadowhall, using mall marketing alone for one visit, and then returning and using a saturated approach across all the media opportunities available at the Sheffield regional centre. The massive sales uplift achieved was enough to convince Siemens that saturation was the way to go.
“We knew it was the right route, but getting the right brand for the right centre is crucial,” says Cullen.
This increasing cross-over between the various elements of commercialisation was one of the reasons underlying spaceandpeople’s acquisition of RMU specialist Retail Profile earlier this year.
“The Retail Profile deal always felt right,” Cullen says. “RMUs had been a gap in our overall business, but it’s another way of adding value to shopping centres. The acquisition completes our array.”
And looking ahead Cullen is confident the commercialisation sector is on a long-term growth curve, even in a depressed economic climate. “Commercialisation is going through a big change and it’s moving towards quality – even the John Lewis Partnership is reconsidering its line on it,” concludes Cullen. “It won’t happen overnight but the lack of development is only going to put more pressure on landlords to make their existing stock more profitable.”
