How malls are reinventing themselves as e-commerce bites

Retailers are embracing smaller stores and experiential selling to stay afloat.

As vacancies rise, struggling malls are trying to redefine themselves in an attempt to stay relevant against a booming e-commerce landscape.

Malls are leasing less space, according to UOB Kay Hian, as they struggle to find anchor tenants. Retail vacancies have trended upwards for the last five years, averaging 7.8% in Q1 2017 to Q2 2019 compared to 5.3% between 2011-2013. At the same time, price and rental indices have shown steady declines from their respective peaks in 2014 and 2011.

“In the past decade, the make-up of shopping malls has changed substantially with many anchor tenants giving up either partially or entirely,” the report noted.  

Some of big-space tenants that exited the market include French hypermarket chain Carrefour, which exited Singapore and Asia in 2010 with Dairy Farm’s Giant taking up part of its space at Suntec City. More recently, Japanese department stores Isetan withdrew from Wisma Atria in 2015 the closure of local department store chain John Little in 2017 after 174 years; and the closure of Metro’s flagship store at The Centrepoint on Orchard Road in 2019. Other shopping malls, such as Shaw Centre, merged with other shopping malls or developments. 

Tenants like Ikea, Barnes & Noble and Nike – which traditionally take up large areas in malls or buildings – announced that they would be opening small format stores. 

To combat declining footfall and rising vacancies, malls have turned to experiential selling and concept stores. Concepts such as indoor gyms and core retail sales, which involve consumers first-hand via smartphones or tablets, are growing in numbers. “Examples of core retail sales include dining out which cannot be done online, as well as grocery shopping which is not realistically possible to do completely online, especially for fresh foods and frozen foods,” explained UOB Kay Hian.

Also read: Retail's saving grace: Singapore malls embrace activity-based tenants

“Meanwhile, large spaces in some malls have been taken up by concepts such as indoor parks like SuperPark, Polliwogs or Amazonia, or the Manulife Sky Nets at CAPL’s Jewel that allows the mall to innovatively monetise airspace,” the report's authors added.

In contrast, Singapore’s e-commerce penetration is growing, with 6% of current retail sales coming from this sector—the highest in Southeast Asia. The island’s e-commerce market is also projected to expand 48% to $9.98b by 2022 with a compound annual growth rate (CAGR) of 7%, according to payments technology company WorldPay.

Compounding the gloomy sentiment amongst physical retailers were the bankruptcies of several major international retailers in the past decade: Sears, Barneys New York, Toys R Us, Diesel, True Religion, Nine West, Karen Millen, American Apparel, Sonia Rykiel,amongst others. “Whilst we cannot attribute their bankruptcies entirely to e-commerce, the broad implication, in our view, is that retailing is tough and ecommerce has made it tougher for retail malls to survive, let alone grow,” said UOB Kay Hian.

Also read: Singapore e-commerce market to balloon 48% to $9.98b by 2022

UOB adds that even parts of core retail sales have been disrupted by e-commerce. “In Singapore, Alibaba’s Lazada acquired online grocer RedMart in 2016 for a rumoured price of $30-40m. Whilst consumers may not elect to buy fresh/frozen meat or fresh fruit and vegetables from online grocers, laundry detergent, dishwashing liquid, rice, tissues and toilet paper are perfect for online shopping as it provides speed and convenience,” said UOB.

Amongst submarkets, fashion and cosmetics were identified as the future key drivers of growth in e-commerce, as availability of offline beauty and fashion retail channels remain limited. Presently, consumer electronics remains the largest category in Asia with about 25% of total online retail sales.

An earlier report by Google, Temasek, and Bain projected that e-commerce in SEA will likely grow from a 1% market share to 6.4% by 2025. This equates to sales growing to $326.9b in 2025 from only $98.1b in 2018, oor a 7-year CAGR of 19%.

Photo of Funan from CapitaLand