The retail landscape across Asia is moving towards e-commerce; at the same time, the trend on the ground seems to suggest that a decline in mall occupancy in most advanced nations is offset by a boom in shopping malls in developing economies.
Text by Jan Yong
PRACTICAL CO-EXISTENCE
“The reports of my death are greatly exaggerated” – Mark Twain’s famous quote probably sums up the shopping mall situation in Asia quite nicely – for now. This article may be a bit ahead of itself if it proclaims that e-commerce will replace shopping malls. E-commerce will never replace shopping malls even in the next 20 – 30 years but will coexist and complement them. The physical mall will never lose its appeal but will evolve to become a one-stop lifestyle or community destination with showrooms and F & B dominating the space.
E-commerce on the other hand will capture a larger share of retail sales – the figure in 5 years could be as high as 25% from the current individual country average of 1% – 10% worldwide (25% is where some analysts predict it will level out).In 10 years’ time, it may even reach 50% or more.
By then, most people will buy their goods online including medicine, groceries and even cars and properties (groceries are already being sold online now). It is even conceivable that by 2040 or earlier, you can buy cars and properties online without prior inspection and receive ownership on the same or next day as all transfers of ownership can be done online.[ihc-hide-content ihc_mb_type=”show” ihc_mb_who=”1,2,3,4,5,6,7,8″ ihc_mb_template=”1″ ]
What this means is there is less need for physical space to display goods. Most goods will be kept at warehouses or factories to be despatched out upon an order being made. Logistics demand will go through the roof as orders pour in from around the world. For example, DHL will be enhancing its nationwide coverage in Thailand with next day delivery in remote areas. It foresees a tripling of the e-commerce market in Thailand to EUR3.6 bil between now and 2020.
It’s the same story in Malaysia where the e-commerce market is expected to grow to RM114 bil by 2020 or 6.4% of GDP, from RM68 bil or 5.9% of GDP in 2015, according to reports.
In Indonesia too, the e-commerce market is expected to grow to US$46 billion in 2025 from just US$1.7 billion in 2015, according to reports. This would make up more than half of the total Southeast Asian e-commerce market making the country the third-largest e-commerce market in Asia, excluding Japan, after China and India. A doubling of Internet users, from 92 mil to 215 mil, is seen as the driver of this expansion.
Without a doubt, the growth of online retail sales will continue to outpace that of store-based retail sales. And not just in Malaysia, Thailand or Indonesia, buying online is the biggest lifestyle-changing trend now, and it is led by China, the undisputed biggest e-commerce market in the world. This trend will grow by leaps and bounds in the next five years, facilitated by e-commerce giants like Alibaba, Ctrip, etc.
Many of us nowadays will head to online shopping portals when we want to buy something, if not to buy, at least to compare prices. According to a report published by DHL Express, cross-border e-commerce is now the fastest growing segment in the retail market.
“Cross-border sales volumes are predicted to increase at an annual average rate of 25% – from US$300 bil to US$900 bil – between 2015 and 2020. This is twice the pace of domestic e-commerce growth.”
EULOGY FOR MALLS?
In its wake are more ghost malls and closures – it has been estimated that one-third of China’s shopping malls will close down in 5 years due to online shopping and a staggering mall oversupply.
China has nearly 4,000 shopping centers, three times more than the US. Estimates say another 7,000 shopping malls will open by 2025, bringing the total number to over 10,000.
The decline of malls has been ongoing for the past few years, not just in the US and China, but also in Malaysia’s Klang Valley.
With headlines in the US like “Department store Sears concedes it’s near death” in late March, and news reports that Manhattan landlords are paying for interior redesigns and moving expenses to keep storefronts from going empty,
one’s gut reaction is that malls are dying in America. True enough, retail analysts in the US have predicted that about 15% of malls in the US would disappear within the next 10 years in the wake of the high profile closures of thousands of stores including branded names like Macy, Sears, Kmart and JC Penney.
WHICH ECONOMIC STAGE?
In short, the decline of the mall for shopping purpose is but a matter of time. It will however not happen to all markets at the same time.
If we take A.T. Kearney Research on GRDI (Global Retail Development Index) Window of Opportunity (see Fig. 1) as a model, markets pass through four stages of retail development – Opening, Peaking, Declining and Closing – as they mature, a process that typically takes 10 to 15 years.
In the Opening stage, common among newly emerging or developing economies, the middle class is growing and exploring the availability of all types of goods, the government is relaxing restrictions and real estate is relatively affordable. In this environment, the appetite for shopping is growing and entrepreneurs are starting to build stores/malls to cater to the increasing demand. Countries that fall into this category include Myanmar, Indonesia, Cambodia and Laos – although all but Myanmar, are already on their way to the next stage called the ‘Peaking’ stage. For the mall owner, the Opening stage (as represented by the rising Curve on the graph) is the best time to go into a new market.
During the Peaking stage when the retail market is at its most attractive, shopping malls and convenience stores flourish and shopping districts are being developed. The Philippines with its hundreds of stores and malls come to mind while latecomer Vietnam is fast catching up – it’s even predicted to be the next shopping mecca in Southeast Asia.
Then comes the Maturing stage – here the Curve moves downwards as it becomes more expensive to invest in malls, not to mention the risk of oversupply and intense competition weighing in. China leads at this stage with 10,000 malls shaping up. Malaysia too, in particular, the Klang Valley region, is expected to see some 20% of mall closures (or conversions) within the next five years, as predicted by property consultant Dato’ Sri Gavin Tee.
Notwithstanding the less attractive scenario, opportunities to enter the market still exist in Tier 2 and 3 cities in China and smaller cities in Malaysia which have yet to see the saturation levels experienced in those bigger cities.
At the final or Closing stage, the window of opportunity becomes smaller. Hong Kong, Singapore and South Korea fall into this stage where their real estate has become very expensive. Most international retail giants have already set up their outlets there and opportunities for new entrants are very limited.
DECELERATION AMID UNCERTAINTY
Since the political and economic upheavals of 2016 (Brexit, Trump and China’s capital control measures), the retail landscape worldwide has experienced a deceleration. Moving forward, its fortune depends on many factors, including macro-economic and geopolitical developments as well as domestic policies. Each market is unique with its own set of challenges and opportunities.
If the overall world economy evolves to the ‘new normal’ where growth rates are lower and global risks are more contained or mitigated by domestic policies, A.T. Kearney’s 2016 Global Retail Development Index (see Fig. 2) might be a good guide as to the level of attractiveness in entering a country’s retail market. Based on the GRDI and our research, there is still a lot of room for growth in Indonesia, Vietnam and the Philippines.
In the Klang Valley, Malaysia, though, a looming oversupply is currently underway. According to reports, from 2016 to
2018, some 102 shopping centres with 31 mil sq ft will be completed, with Kuala Lumpur and Selangor receiving the major supply.
Gavin Tee who is also President of Swhengtee International Group, reckons that the Klang Valley is 30% oversupplied with malls. Adding to this will be shoplots which will experience a revival in areas near the new MRT stations while old office buildings and even factories can also be used as retail space.
SOLUTIONS APLENTY
For those cities with an oversupply situation, all is not lost. The key is to adapt to the new consumer behaviour. Today’s consumers want a trip to the mall to be an experiential and social event.
The relevant authorities should also put in place mechanisms to control the future supply, KGV International Sdn Bhd (Johor branch) director Samuel Tan proposes. “The authorities should consider making data such as future supply, occupancy rate and rental rate readily available to relevant players such as developers, retailers and property consultants. They should also consult with them to gauge the retail market trend and sentiments.”
As at Q3 2016, there are 140 shopping malls in Johor, out of which, 64 are in the capital city, Johor Bahru which is part of Iskandar. With 8 new malls in the pipeline and a stable catchment population, competition will be very intense in the near future.
Meanwhile, in the case of China, James Macdonald, Head of Savills Research China, suggests converting a mall or part of a mall into another usage such as the last mile e-commerce solutions, co-working or co-living spaces, or community centres.
Tee lists out several solutions:
- Management – decision-makers are the key for malls to survive and expand. They must be younger, knowledgeable in technology and the market and very much exposed to the commercial world.
- A unique theme will distinguish it from other malls – for example, theme park, auto city, Bentong durian mall, Legoland, entertainment or F&B centre, fashion warehouse, or children’s mall (e.g. Singapore’s United Square mall is a niche mall for children). Malls have to make it experiential with the latest technology.
- Tenant mix – malls must have a unique mix instead of the usual international franchises especially in the case of oversized malls or those in the outskirts. Malls in small towns need community-centred activities where families can gather or a pet hotel, or a big Chinese restaurant.
- Advertisement & Promotion has to change to cater to the new behaviour of shoppers. Due to the convergence of technology including the immediate speed of messaging, people can now plan ahead and synchronise their activities easily.
- Cost control – Many retailers cannot afford the mall rental cost so malls have to find ways to make the space very functional and cost-efficient, for example, sharing retail space.
- Omni-channel approach including social media, online store or even virtual reality mall (a Korean-backed initiative).[/ihc-hide-content]