15 October, 2008

---

Shopping centres are still reaping the benefits of the additional income that comes from mall commercialisation, despite the economic slowdown. But are they having to work harder to get it? Claire Elliott poses the question?

For the majority of shopping centres and retailers in the UK, the credit crunch has meant a fall in sales and footfall over the past year and has led to a greater number of voids in the mall. Guaranteed rental income from tenants is therefore falling as fewer units are occupied and rents remain static, so shopping centres are being forced to look at other avenues to generate revenue.

Commercialisation has become a buzzword for landlords over the past few years with more and more initiatives being developed to ensure the income generated from the mall is maximised. But how has this area of the industry been affected by the credit crunch?

According to the Promotion Space Group, business is booming and the company is gearing up to take advantage of the credit crunch. Group business development director Paul Soanes says the RMU business has really taken off. Over the past few months business across the group has increased by between 20 and 25 per cent, and RMUs have reaped the benefits of the credit crunch with some traders taking as many as 50 sites across the country. “It’s a flexible model for traders as they won’t want to commit to long leases,” says Soanes. “RMUs enable them to come into the mall for a month. Our instincts say that this opportunity is going to grow.”

Bryony Parkin of Asset Space says with things being tougher and media budgets coming under scrutiny, companies are having to focus more on where they spend money.

“When companies are setting budgets for the next financial year they’ll be far more careful about where money is allocated,” she says. “Although there are happy exceptions, the general trend for footfall is down, and in people are spending less money. This poses a challenge because in a shopping centre attracting 450,000 people a week, even a downwards trend of a percentage point or two is serious. We need to be pulling the centre together as an organic entity and working collectively with the management teams, the marketing teams and the retailers to combat the climate. Perhaps the economic downturn should be viewed as an opportunity to look at things in a new way. We’re looking to boost tenant sales by working with the retailers and the centre. We have a raft of specialist subcontractors who can be pulled into a centre for temporary lets. This drives not only income, but also footfall for the retailers to capitalise on. We’re also helping retailers make more effective use of their below-the-line spend, which in a tough climate is a really important area.

“Where a retailer promotion is to be located on the mall will depend on the type of promotion. For example, if WHSmith were to look at putting its Bookchart books on the mall, this would work well on an RMU outside the unit itself.”

“However, if Boots had a brand promotion which would normally be sited deep in the shop where customers would be browsing to find it, this could be transferred into a secondary location on the mall to drive footfall rather than providing convenience. It really depends on what a retailer is trying to promote.”

Stephen Court, director of retail marketing and head of commercialisation at Hammerson, says that following a study this year and last year, the company is increasing the number of RMUs in its portfolio in order to provide opportunities for seasonal merchandising that complement the existing tenant line-up. “There was a positive outcome to that study so we've invested in this side of the business,” he says. “We’ll work with our partners such as Retail Profile. RMUs will continue to be an important and growing part of commercialisation.”

Soanes adds: “RMUs also look quite good in front of an empty shop unit. We can build a retail display in front of the unit or go back into the shop and rent it for so long before it is leased to a permanent tenant again. The centre benefits from having no voids while making income from the dead space.”

Parkin also believes that shopping centres should be looking to take more advantage of their empty units during these difficult economic times.

“Shopping centres should be looking to attract temporary businesses that have minimal fit out and use the store for two or three months at a time, to take advantage of the empty rates relief,” she says.

”It’s a great business opportunity that can be capitalised on. For example, we’re working with certain computer games brands using vacant units for a couple of months or so for launches, but they can’t be the only people that have explored this option. Things will get tougher before they get better, so we need to be willing to try new things. I think that landlords are open to new ideas, so long as they fit with their asset and brand directives.”

Nancy Cullen, of Space and People, stresses that the problem comes when the unit is still held by the tenant. “Some empty units are still held by a tenant, so actual availability isn’t quite what it seems,” she explains.

But it’s not only the temporary retail market that’s reaping the benefits of the credit crunch. As retailers look for short–term leases and national brands look to expand their offer into the malls, Promotion Space’s poster management division, which specialises in changing–room advertising space, is another area that is cantering along at speed. As brands cut their advertising budgets for mass media, such as TV, they’re tending to want to focus on directly targeting the right people. Changing–room advertising is a way of communicating to consumers on a one–to–one basis and offers brands an opportunity to choose their audiences carefully.

For the same reasons face–to–face targeted marketing is also riding the economic waves. Soanes explains that high ticket price items — where brands require much longer discussions with consumers in order to encourage them to buy, and more complex items that need to be demonstrated and explained in more detail than a 20–second TV ad can afford — are tending to choose shopping centres for their promotions.

“Shopping centres are good value and are more measurable,” explains Soanes. “With TV you can’t do anything for less than £1m but at a shopping centre you’re looking at a £100,000 campaign. Brands are buying across media packages in the malls so we get asked to provide the promotional space for the brand launch but then they also buy other media rights in the mall, such as posters and hanging banners. That’s driving additional revenue.”

So what brands are choosing shopping centres to market their products?

“We’ve seen a lot of the consoles this year, such as Nintendo, XBox, Sega and Microsoft,” says Soanes. “It works better if those products are demonstrated and people have to try them if they’re going to buy them, and you can’t do that on TV.”

He says the telecoms and gas companies are still using the platform to directly encourage shoppers to switch suppliers and credit card companies are returning to the market. However, there is less growth in FMCG (fast–moving consumer goods) brands, which prefer to advertise close to the point of purchase.

Cullen says that so far Space and People has been unaffected by the credit crunch but only because it has been actively canvassing clients. “There’s a change in the sectors that are booking space on the malls,” she says. “The property and financial services markets are very quiet at the moment but we’re seeing big growth from brands that will get a direct response, as it’s targeted marketing rather than mass media.

“There’s a big growth in the gaming sector for the same reason. If they base themselves near the shops where their games are for sale then they get immediate sales off the back of it. Cars went quiet during the oil crisis but they’re back now and we’re gaining support from head office dealerships. Food is strong, and so is lifestyle.

“In terms of our business we have to get out there and find clients. We’re looking to increase our sales year–on–year. Malls are an area for growth and we’re working strategically with the venues to find businesses that will come in on a long–term basis. It’s about looking at the creative use of mall space. Maybe a small area on the mall previously taken up by a financial institution may be suitable for a florist, for example.”

Tony Christie, fund manager for the Grosvenor Shopping Centre Fund, has seen a general tightening of the mall income market. However, he says figures are still continuing to improve year on year, with every centre meeting higher targets than 2007.

“We’re seeing operators being more selective about their locations but this is often proving to be to our advantage,” he says. “We’re careful about where to locate mall income generating initiatives in order to get the maximum impact from them.”

“Over recent months, when advertising and mall vending contracts have been renegotiated, we’ve been achieving similar income levels or small uplifts in addition to a more up–to–date or attractive operation to enhance the appearance or customer offer.

“Our ability to keep growing income despite the credit crunch is partly due to a number of initiatives introduced last year, including new income streams such as lift door, bulkhead and escalator handrail advertising. The introduction of shoppers’ lockers at Festival Place, Basingstoke has not only created an additional income stream but has also increased dwell time and generated good customer feedback.”

“Despite a drop in the amount of promotional activity, we’re maintaining a policy of quality rather than quantity, utilising flexible arrangements and tight financial management. We continue to develop attractive new income streams to ensure we maintain income growth through 2009 and beyond.”

Court offers a similar take on the market. “For now Hammerson’s portfolio continues to grow in terms of value and profitability but in truth year–on–year, although our business is growing, it’s never the same from one year to the next,” he says. “Is the credit crunch having a natural impact on our portfolio? We haven’t seen it yet but that’s not because we have an incredible aura around us. There’s some evidence that on the promotional side of commercialisation there is a little bit more caution. I don’t think there’s less business out there, but brands are waiting longer to make commitments. I think that 2009 will be a challenging year because there are no indicators as of today that the consumer economy is going to escape what has hitherto been almost exclusively a business–related downturn, confined to certain sectors.

“We have a very flexible and are not reliant on one sort of income. If there is a softening in the promotion side of the business, we have opportunities to gear up other areas of our work.”

So it’s not all doom and gloom in the shopping centre sector. By working hard and targeting the right brands additional revenue can be generated on the malls. In fact, the sector is continuing to grow despite the recession.

Cullen concludes: “It’s a tougher market. There are less huge companies spending big money, but it’s still a vibrant market.”