Y RESEARCH THOUGHT LEADERSHIP VISITING THE SHOPS A STUDY INTO CONSUMER CHOICE AT WESTERN AUSTRALIA’S MAJOR REGIONAL AND REGIONAL SHOPPING CENTRES

NOVEMBER 2017 To discuss this Thought Leadership study or any Y Research Report further, please contact:

Mr Damian Stone Chief Problem Solver

Y Research – Independent Commercial Property Information and Research

M 0433 525 414 E [email protected] A PO Box 683, Applecross WA 6153

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Visiting the Shops - November 2017 2 WELCOME Mr Damian Stone | Chief Problem Solver

Choice and Convenience.

On the 20 February 2005, a much younger version of myself, as part of my previous role at a property industry association, repeated this phrase handing out how to vote cards outside a polling place in Applecross during the referendum on extended trading hours on weeknights and the introduction of Sunday trading.

Choice and Convenience - was the key message of the Yes Campaign to voters. Extended trading hours would allow shoppers to pick times suitable to their lifestyle to shop, rather than rushing to fit their lifestyle into the arbitrary constraints of Government regulation.

57.4% of West Australian’s voted down extended trading on weeknights and 59.6% voted down Sunday Trading. Given my polling place was located between two of the most successful IGA’s in Perth, I was not surprised by the result, given the feedback I received on the day. Within 5 years, the new Government had introduced extended weeknight trading and Sunday Trading on the back of the resources fuelled boom in Perth’s population. As intended, extended trading has created jobs, fuelled the expansion of existing centres and been widely accepted by West Australians.

Choice and Convenience.

In 2017, WA consumers are increasingly spoilt for choice and convenience in terms of retail options. Perth is poised for a $5 billion wave of shopping centre development focusing on new neighbourhood centres, as well as the expansion of major centres to offer more dining and entertainment options, international retail and services such as gyms and child care. At the same time, the large format retail market, fuelled by the growth of Bunnings and the former Masters chain, has matured into a major part of the Perth retail property market.

Online retail continues to erode the market share of bricks and mortar retailers as consumers seek the best possible price. The looming launch of global e-commerce giant Amazon in Australia, in late 2017, is expected to further increase competition for scarce consumers dollars and impact the bottom line of Australian retailers.

Shopping today can be done at home, on the go or in store. With consumers having multiple shopping options, how can Perth’s major shopping centres compete? Smaller neighbourhood centres offer more convenience for shoppers. The internet offers a choice of affordable, shopping options from around the globe.

Increasingly shopping centres in Perth, Australia and across the globe are moving towards offering experiences not found online or in smaller centres. Centres are introducing fine dining precincts, expanded entertainment options (cinemas and concert facilities), services (child care and gyms) and introducing new types of retailers.

Where is Perth today in this evolution of shopping centres? What choice do WA consumers have when visiting our major shopping centres? This study seeks to define consumer choice in Perth’s major regional and regional shopping centres by examining the similarity of these centres in terms of their current tenancy mix. To establish the similarity of these centres, Y Research developed the Shopping Centre Similarity Score.

We hope these findings will assist Perth’s major shopping centres to differentiate themselves to thrive in the increasingly competitive retail market as well as provide the public with information about the shopping choices available to them in major shopping centres.

Thank you for making the choice to read this study. I hope the findings are convenient for you.

Visiting the Shops - November 2017 3 INTRODUCTION

We live in a world where, increasingly, products and services we As a result, major shopping centres are evolving to become more want can be ordered on demand. Thanks to companies such as than simply places to shop. The expansion of Perth’s major Uber (and Uber Eats), to Netflix, Amazon, AirBnb and Facebook, regional centres is based on providing what the internet and we no longer have to wait for a taxi, to cook, go to the video or neighbourhood centres can’t: great public spaces where people book store, or tomorrow’s newspaper. can meet, eat and be entertained, in addition to shopping. These centres will rely on the experience offered to customers to drive Armed with a smart phone, most consumer goods could be traffic into bricks and mortar shops. ordered online and delivered to your door. How do bricks and mortar retailers compete to retain their share of WA’s $34 billion Central to the next decade of retail is getting consumers retail trade market? to the door of the shopping centre. The choice each centre offers consumers, based on their tenant mix, plays a key The performance of Department Stores, the anchor tenants of part in attracting customers to centres from beyond their major regional centres, continues to erode. Sales in Department primary catchment area. So in 2017, ahead of the wave of Stores in WA were down 4.3% in the year to July 2017 according redevelopments, what level of choice do Western Australia’s to the Shopping Centre Council of Australia. Supermarkets, food, major shopping centres offer WA consumers? fashion, international retailers and services are becoming the new pillars of modern major shopping centres. These pillars This Thought Leadership Report will: are set to underpin the biggest change in Western Australia shopping centres in nearly two decades. >> Analyse the current tenant mix of Perth’s 16 largest shopping centres using our new metric (the Shopping According to Y Research’s May 2017 Shopping Centre Centre Similarity Score) to determine the level of consumer Development Report, an estimated $5.14 billion dollars is choice across these centres; set to be invested in shopping centre developments across metropolitan Perth between 2016 and the end of the decade. >> Examine how frequently consumers would visit each centre These developments are a balance of new local services based on their tenancy mix; and and regional entertainment hubs. Nine of Perth’s largest shopping centres are set to expand dramatically adding new >> Analyse the potential impact the arrival of international Department Stores, supermarkets, international retailers and e-commerce giant, Amazon, could have on the performance over 1,000 speciality stores due to the Activity Centres Policy. of these centres. The Policy, which aims to establish community focal points, is also facilitating the development of non-retail spaces, such as childcare centres, gyms, medical facilities, offices, apartments and public meeting spaces.

Visiting the Shops - November 2017 4 STUDY METHODOLOGY

This study reviews the occupancy of the 16 largest shopping SCORING SYSTEM METHODOLOGY – Y RESEARCH centres in Western Australia. These centres contain WEST AUSTRALIAN SHOPPING CENTRE approximately 41% of the space in West Australian shopping SIMILARITY SCORE centres, despite representing just 5.5% of the 293 shopping centres in WA (Shopping Centre Council of Australia/Centre To measure the diversity of the tenancy mix in these centres, owners/Y Research). Y Research developed a new metric – the West Australian Shopping Centre Similarity Score. The metropolitan shopping centres examined for this Report were: The system uses the frequency that retailers appear in each of the 16 centres to determine how similar each centre is. For Major Regional Shopping Centres (more than 50,000 sq m of example, video game retailer, EB Games, one of the limited NLA) number of retailers that is in each of the 16 centres, was assigned a 16 score, Woolworths, which is in 15 of the centres, >> Carousel Shopping Centre, Cannington – owned by Scentre was assigned a 15 score, through to individual, independent Group; retailers such as newsagents, butchers, etc which were assigned >> Cockburn Gateways Shopping Centre – owned by Perron a 1 out of 16 score. Group; >> Galleria Shopping Centre, Morley – owned by Vicinity Using the score of individual retailers, each centre was assigned Centres and Perron Group; a Shopping Centre Similarity Score based on their tenancy mix. >> Garden City, Booragoon – owned by AMP; Higher scores show a greater number of common retailers with >> Karrinyup Shopping Centre, Karrinyup – owned by AMP; lower scores highlighting more unique shopping options. >> Lakeside Joondalup, Joondalup – owned by Lend Lease; >> Midland Gate, Midland – owned by Vicinity Centres and Score were developed to compare: Perron Group; >> Rockingham City, Rockingham – owned by Vicinity Centres; >> The tenancy mixes across all 16 centres; and >> The comparative tenancy mixes of the 9 Major Regional >> Whitfords City Shopping Centre, Hillarys – owned by Scentre Centres; and Group. >> The comparative tenancy mixes of the 7 Regional Centres.

Regional Shopping Centres (more than 30,000 sq m of NLA) Each of the 2,719 stores reviewed were classified based on the type of store as well as their product offering. >> Armadale Shopping City, Armadale – owned by Lend Lease; >> Belmont Forum, Belmont - owned by Perron Group; Stores were classified as one of the following: >> Innaloo Shopping Centre, Innaloo – owned by Scentre Group; >> Major retailer - such as a Department Store or >> Mandurah Forum, Mandurah; owned by Vicinity Centres; supermarket; >> Mirrabooka Square, Mirrabooka - owned by Perron Group; >> Mini Major - a store with more than 400 sq m. This typically >> Ocean Keys Shopping Centre, Clarkson – owned by includes stores such as JB Hi Fi, Best and Less and AMP; and Red Dot; >> Warwick Grove Shopping Centre, Warwick – owned by >> Speciality – all other stores except for stores classified as Vicinity Centres other retail; >> Other retail – typically stores that are serviced based such as travel agents, insurance, banks, cinemas and lotto kiosk.

Visiting the Shops - November 2017 5 These definitions are taken from the Shopping Centre Council of The following scoring system was used to develop Visit Score for Australia’s Sales Reporting Guidelines, December 2010. each centre:

To further clarify the tenant mix of individual centres, each Typical Store Usage tenant was classified by the operations of their business. There was no common tenant classification system across the >> 10 points – More than once a week; 16 major shopping centres. Even between centres owned by >> 8 points – once a week; the same company. The following classification system was >> 6 points – once a month; developed for this study. >> 4 points – once every three months; >> 2 points – once every six months; and >> Discount and Variety; >> 1 point – one visit a year. >> Entertainment; >> Electronics; With e-commerce giant, Amazon, set to open an expanded >> Fashion; product range in Australia in late 2017, there has been >> Food and Beverage; significant press focusing on the risk to local retailers. Major >> Health and Beauty; retailers Harvey Norman, the Good Guys and JB Hi Fi, who >> Hobbies Gifts and Stationary; typically favour large format retail, are expected to most at >> Home and Lifestyle; risk to Amazon product offers and pricing. To determine the >> Major; potential impact of Amazon on Perth’s major shopping centres, a >> Services; and threat analysis was undertaken. The scoring system was based, >> Sport and Leisure. in part, on online shopping data for Australia and the United States. Stores offering products such as books, music etc were As part of the review for this study, the frequency with which a judged to be most at risk with service providers judged to be typical person would visit each store was estimated. Estimates least at risk to increased online shopping. Stores were given a were based on shopping frequency data from the ABS, consumer score between 1-10 depending on their Amazon risk, with 10 surveys by Roy Morgan Research, data from individual retailers’ representing most at risk and 1 stores with the lowest risk. Annual Reports and discussions with (research and retail property executives). So, based on the outlined scoring system which Shopping Centres offer consumers the most choice?

Visiting the Shops - November 2017 6 CHOICE IN WESTERN AUSTRALIA’S MAJOR SHOPPING CENTRES

Despite many shoppers having the feeling that every shopping secondly, the absence of chain stores from other centres. centre is the same, the analysis for this study highlights the The currently being redeveloped Mandurah Forum, is the least diversity of the tenancy mix in Western Australia’s major diverse centre of the 16 centres studied recording an 8.78 shopping centres. Shopping Centre Similarity Score. This score highlights that Mandurah Forum is 20.4% less diverse than the average for The average Shopping Centre Similarity Score was 7.29 out of 16. Western Australia’s major shopping centres. Mandurah Forum This signifies that 45.5% of the stores in each centre are exactly contains 54.9% of retailers common to other major shopping the same. This is based on a typical centre, developed using the centres. This is driven in part from Mandurah’s role as a country averages on the 16 centres studied (the typical centre would be centre which sought to offer retailers similar to those in the 56,141 sq m in size and contain 170 stores). metropolitan area. 35.3% of Mandurah Forum’s retailers can be found in 75% of Perth’s major shopping centres. The most diverse centre is Lakeside Joondalup registering Shopping Centre Similarity Score of 6.16. This score highlights Innaloo, 8.65 Shopping Centre Similarity Score, and Belmont that Lakeside Joondalup is 15.6% more diverse than the average Forum, 8.6 Shopping Centre Similarity Score, also recorded for Western Australia’s major shopping centres. Lakeside high Shopping Centre Similarity Scores. Both centres’ scores Joondalup, Western Australian largest shopping centre, contains are influenced by the leasing strategies of their owners with only 38.5% of retailers common to other major shopping centres. significant overlap in tenants from centres owned by common It is the only centre with 4 supermarkets, international fashion owners. 36.2% of retailers at Belmont Forum and 34.2% of retailer H&M and discount Department store Harris Scarfe. retailers at Innaloo are found in more than 75% of major Perth Other unique, well known retailers include Quicksilver, Tiger shopping centres. Lily, Jean Pierre Sancho, Max Brenner, Ben & Jerry and Crust. Lakeside Joondalup is also one of three centres in metropolitan Analysis into the relationship between shopping centre size and Perth to contain name brand retailers, Samsung, Hogs Breath tenant diversity (using the Shopping Centre Similarity Score) Café, Hype DC, Windsor Smith, Timezone, General Pants Co, highlighted a correlation co-efficient of -.80. This demonstrates Oporto, Kookai and Ripcurl. that as the size of the centre increases, the number of common tenants decreases. A similar analysis between the number of Major Regional centres Carousel, 6.5 Shopping Centre Similarity stores and its impact on tenant diversity highlighted a correlation Score; Garden City, 6.61 Shopping Centre Similarity Score; co-efficient of -.81. This could be explained in a number of ways: Karrinyup Shopping Centre, 6.66 Shopping Centre Similarity Score and Whitfords City, 6.73 Shopping Centre Similarity Score, >> As centres get larger they require more unique, local form the balance of the 5 most diverse shopping centres studied. tenants to lease space as there are a limited number of major retailers and franchise chain stores. Unique tenants to Carousel, WA’s second largest shopping >> The increased size of centres allows centre managers to be centre, include emerging food retailers Nene Chicken and more creative in the type of retailers who occupy space. Tommy Sugo, entertainment provider Foxtel and a range of >> The former floorspace caps on WA retail centres independent food and beverage and health and beauty providers. encouraged a similarity in centres as centres were unable Unique retailers to Garden City include international retailers to expand and became reliant on well-known brands and Apple and Zara. Garden City and Karrinyup share a number of retailers who could afford to pay market rents in major unique fashion retailers such as Aquila, Oroton, Mimco, Seafolly centres. and Tookay Boutique. Both centres contain the only current >> WA’s Retail Tenancy Act, which gives tenants a minimum David Jones Department Stores. There are 29 retailers unique to 5 year lease, could discourage innovation (new formats Karrinyup highlighted by Tony Barlow Menswear, Laura Ashley and new retail offerings) in retail leasing. As a result, and Sheridan. Whitfords City has 58 unique retailers including more innovative offerings are likely to be located in Lincraft, City Farmers, Esprit and service providers such as a neighbourhood strip shops or online. karate school, swimming school, Event Cinema and Library. Mirrabooka Square, 7.17 Shopping Centre Similarity Score, is Given these findings, the wave of shopping centre expansions are the most diverse Regional Centre. This is driven by two factors likely to encourage a more diverse range of tenants to - 31 unique retailers (predominantly food and beverage) and, occupy space.

Visiting the Shops - November 2017 7 All Centres Comparison Major Centres Comparison

Table 1 below highlights the Shopping Centre Similarity Score for In addition to the 10 retailers common to all 16 centres, there each of the 16 shopping centres studied. are 26 retailers common to all 9 Major Regional centres:

There are just 10 retailers common to all of Western Australia’s >> Angus and Coote; largest 16 shopping centres. >> Bakers Delight; >> Boost Juice; >> Major local bank – Bankwest; >> Bucking Bull; >> Travel company - Flight Centre; >> Cotton On; >> Food and Beverage operator - The Coffee Club; >> Dusk; >> Accessories retailer – Strandbags; >> House; >> Health services provider – OPSM; >> Jamaica Blue; >> Health and Beauty retailer – Priceline; >> Jeanswest; >> Video game retailer - EB Games; and >> Live Clothing; >> Mobile phone providers – Optus, Telstra and Vodafone. >> Looksmart Alterations; >> Lovisa; There are no major tenants common to all centres with both >> Mazzucchelli's; major supermarket chains, Coles and Woolworths, common to >> Michael Hill; only 15 of the 16 centres - Coles are located in an alternative >> Muffin Break; centre to Midland Gate and Woolworths are based in a centre >> Nepolean Perdis; nearby to Armadale Shopping City, in the Armadale town centre. >> Novo Shoes; Retailers such as Specsavers, Australia Post, Muffin Break, >> Pandora; Boost Juice and Bakers Delight are common to 15 shopping >> Professionail; centres. Well-known retailers Dusk, Jeanswest, Prouds and >> Shaver Shop; Spendless Shoes can be found in 14 of the 16 shopping centres. >> Specsavers; >> Sunglass Hut; >> Sushi Sushi; >> Tarocash; >> Woolworths; and >> Zubia’s Threading.

Visiting the Shops - November 2017 8 The average Centre Shopping Centre Similarity Score for Major When compared to similar sized centres, there are minimal Regional centres was 4.85 out of 9. This represents that 53.9% changes in rankings. Whitfords City improves its ranking due to of the stores in each centre are exactly the same. This is based the level of unique services offered in the centre. on a typical centre, developed using the averages of the 9 Galleria’s ranking declines – this is potentially due to the fact centres studied, which would be 70,657 sq m in size and that Galleria was the first centre to cap out under the old contain 214 stores. Metropolitan Centres Policy, in 1994. It is likely that the tenancy mix in Galleria has been used as a template for other centres as The most diverse centre remains Lakeside Joondalup which they have expanded. scored 4.39 out of 9 on the Shopping Centre Similarity Score. Lakeside Joondalup contains only 48.8% of retailers common to Table 2 below highlights the Shopping Centre Similarity Score for other Major Regional shopping centres. All other Major Regional each of the 9 Major Regional shopping centres studied. Centres contain over 50% of common tenants.

Visiting the Shops - November 2017 9 Regional Centres Comparison Mirrabooka Square contains only 46% of retailers common to other Regional shopping centres. In addition to the 10 retailers common to all 16 centres, there are just 5 retailers common to all 7 Regional centres: When compared to similar sized centres, Innaloo improves its rating from the 6th rated centre to the 2nd highest rated centre. >> Major Australian bank - CBA; This is due to common tenants shared with major regional >> Service provider - Australia Post; centres owned by the same company. >> Discount Department store - Kmart; >> Lifestyle store - Thingz; and Belmont Forum, Mandurah Forum and Armadale Shopping City >> Supermarket - Coles. contain over 50% of common tenants. This is likely linked to common leasing strategies of the owners and, with Mandurah The average Shopping Centre Similarity Score for a Regional and Armadale, their distance from the CBD and other Centre was 3.47 out of 7. This represents that 49.6% of the major centres. stores in each centre are exactly the same. This is based on a typical centre, developed using the averages of the 7 centres Table 3 below highlights the Shopping Centre Similarity Score for studied, which is 37,476 sq m in size and contains 113 stores. each of the 7 Regional shopping centres studied.

The most diverse centre remains Mirrabooka Square which recorded 3.22 out of 7 on the Shopping Centre Similarity Score.

Visiting the Shops - November 2017 10 by Mirrabooka Square having three supermarkets (Coles, HOW OFTEN TO Woolworths and Aldi), 5 cafes and convenience offerings - butcher, bakery, green grocer and newsagent/lottery kiosk. Warwick Grove had the second highest Visit Score, 4.96, due to PEOPLE VISIT dual supermarkets, dual gyms (including former boxer Danny Green’s independent gym), 4 cafes and convenience offerings THE SHOPS? – dual butchers, bakery, green grocer, service station and newsagent/lottery kiosk. Belmont Forum’s visit score of 4.81, was influenced by three supermarkets and 4 cafes. The three top With strong competition for the limited consumer dollar, the scoring centres also had the fewest lowest scoring retailers of fundamental challenge of retail in 2017 is getting customers to the 7 regional centres reviewed. the front door. Midland Gate recorded the lowest Visit Score of 4.39 – Regular retail sales patterns, Christmas, Easter, end of financial highlighting that a typical consumer would purchase an item year are well anticipated by customers. With affordability a key from a store in the centre just over once every three months. concern, consumers are waiting for sale prices to purchase; this Consumers would visit Midland Gate 4.4% less frequently than is leading retailers to extend sales offers, thereby blunting the the average centre. Centres with lower visit scores have a higher impact of traditional strong sales months. New drivers, such as number of retailers that attract customers once a year (travel the experience offered and the services and tenants on offer in agent, foreign exchange, mobile phone repairers, optometrists). each centre, are playing an increasing role in driving foot traffic. Table 4 below highlights the Shopping Centre Visit Score for each What role does a diverse tenancy mix play in bringing customers of the 16 shopping centres studied. to the door? Analysis into the relationship between shopping centre tenant As outlined, for this study, a scoring system was developed to diversity (using the Shopping Centre Similarity Score) and each rate the frequency with which a typical person would visit each centre’s Visit Score highlighted a low correlation co-efficient of store. The maximum score was given to retailers that would 0.19. This would infer that increased consumer choice is not a attract customers to the centre more than once a week, such strong determinant of consumer shopping habits. as supermarkets. High points were given to retailers that would attract customers once a week, such as coffee shops, or once This could be explained in a number of ways: a month, such as most fashion retailers. Lower scores were given to retailers that attract customers less frequently, such as >> The proximity of the centre to consumers. Despite increased once every three to six months (shoe stores, jewellers, service choice, consumers are still likely to shop at a centre close providers). Retailers who typically attract customers only once to their home address (within the primary catchment of the a year, such as travel agents, optometrists, cobblers etc, were shopping centre). given the lowest scores. >> Shopping habits are more likely determined by consumer needs/desires than choice of retailer. The focus is on the So based on the scoring system, what is the typical Visit Score item required not the number of options to purchase for each centre? the item. >> A lack of consumer awareness of choice in major The average Shopping Centre Visit Score was 4.59 out of 10. This shopping centres. represents that a typical consumer would purchase an item from >> While the focus of this system was to determine consumer a centre just over once every three months. purchasing patterns, it would not account for the social aspect of browsing. This would increase the visitation Mirrabooka Square recorded the highest visit score of 5.1 numbers to each centre. Centres with more options may out of 10. Consumers would visit Mirrabooka Square 11.1% attract more visitors to browse. more frequently than the average centre. This is influenced

Visiting the Shops - November 2017 11 WHAT RISK DOES AMAZON POSE TO WA SHOPPING CENTRE RETAILERS?

The risk to local retail posed by the looming launch of Warwick Grove recorded the lowest Amazon Risk score of 3.53 international e-commerce giant, Amazon, has driven significant out of 10. This represents that Warwick Grove, due to its tenancy press and industry chatter in 2017. While it is generally accepted mix, is 13.9% less at risk to increased online shopping than that Amazon’s launch will negatively impact some retailers, the average centre. Warwick Grove, Belmont Forum, with a 3.6 there are many products that consumers still prefer to buy in- Amazon Risk score, and Mirrabooka Square, with a 3.72 Amazon store rather than online. Risk score, are at reduced risk to online shopping due to tenancy mixes with high exposure to services such as hairdressers, skin To determine the potential impact of Amazon on Perth’s major and nail care professionals, drycleaners etc. These centres have shopping centres, a threat analysis was undertaken. Stores retailers with low visit scores but are impossible or difficult to offering products such as books and music, that are widely recreate online – watch, shoe and mobile phone repair, massage, purchased online, were judged to be most at risk and awarded optometrists and cafes. the highest score 10 out 10. Retailers such as health and beauty (hairdressers, massage and optometrists), independent food and Karrinyup, 4.59, and Garden City, 4.56, recorded the highest beverage outlets and services, such as watch repair, were judged Amazon risk scores – this was due to their tenancy mix focusing to be least at risk to increased online shopping and given the on fashion. Online clothes shopping is one of the fastest growing lowest score of 1 out 10. sectors for online retail. There is anecdotal evidence that consumers are visiting stores to determine fit and how clothes So based on the scoring system, what is the typical Amazon Risk look on them and then heading online to order. The focus on high Score for each centre? end fashion may limit the impact of Amazon in the short term. The Amazon risk scores for these centres, due to their tenancy The average Shopping Centre Amazon Risk Score was 4.1 out mix, make them 12% and 11.2% more at risk to increased online of 10. This represents/indicates/shows that the average centre shopping than the average centre. is just under moderate risk (5 out of 10) to increased online shopping (Amazon). Table 5 below highlights the Shopping Centre Amazon Risk Score for each of the 16 shopping centres studied.

Visiting the Shops - November 2017 12 CONCLUDING THOUGHTS

The retail landscape in Western Australia remains difficult after different names which are, in essence, the same offering. the boom. So with the similarity of Perth’s major centres closer to 60%, Low wages growth, slowing population growth, a relatively high how can these centres differentiate themselves to thrive in the Australian dollar and high levels of household debt have all increasingly competitive retail market? played a role in WA’s reduced consumer spending in recent years. The first step has been the introduction of the Activity Centres Policy which, by removing arbitrary floorspace caps on centres, The next 5-10 years will bring the biggest change to WA’s retail is in the process of changing major regional centres from big landscape in 20 years. retail boxes to community focal points encompassing a broader range of uses. The ability to expand is key to greater consumer Nearly 50 projects, a mix of expansion to existing centres and choice. This study highlighted the strong relationship between new neighbourhood centres, are forecast to be completed larger centres and tenant diversity. between 2016 and the end of the decade. Proponents of these projects are set to invest an estimated $5.1 billion. Upon Secondly, the wave of development will create: completion these projects will increase the supply of shopping centre floor space in metropolitan Perth by 25.7%. >> Dining precincts, including top line restaurants and taverns such as Whitfords Brewing Company which recently opened Importantly, these centres will give local consumers more choice in the first stage of the Whitfords City redevelopment. of retailers with expanded centres adding new supermarkets, >> In limited examples, there is space planned for concerts department stores, discount department stores, international and events offering public spaces for experiences beyond retailers and an estimated 1,480 speciality retailers. hearing Australian Idol contestants. >> Refurbished and expanded cinemas are a key feature The forecast level of development places pressure on existing despite the rise of streaming services. centres to retain and grow their existing customer base. The >> New service based retailers - gyms, childcare centres, arrival of Amazon into Australia is, on average, a moderate medical centres and children’s playgrounds that will create threat to the tenancy mix of existing major centres in WA. daily interaction.

Centres are evolving into two centre types: The shopping experience is central to attracting customers to bricks and mortar centres. Services such as store concierges, >> Everyday convenience centres based around growing VIP offers and special parking zones will become more common. supermarkets and A focus on store design, casual mall leasing mix, the type of >> Regional level activity centres based around the shopping music played in common areas and even the paint colour used experience – better dining options, new international will be crafted to invoke the desired response for consumers retailers, incorporation of emerging technologies and (paraphrasing 2000’s boyband N’Sync) to buy, buy, buy. complimentary uses such as apartments, medical/childcare centres and office space. Getting customers to the door more regularly is key. Major shopping centres are evolving to become more than simply Centres that cannot compete on convenience with places to shop. They are becoming public spaces where people neighbourhood centres, and tenant diversity with Major regional can meet, eat and be entertained, in addition to shopping. centres, sub regional and regional centres, risk getting stuck in Increasing the dwell time of consumers is a focus of centre the middle. The evolution of the tenancy mix and product offering managers and leasing agents. in these centres is the next major change coming to WA’s shopping centre landscape. Tenant diversity in WA’s major shopping centres will also be boosted by the attraction of new retailers to centres. With more and more shopping choices available to consumers, International retailers from Apple to Zara are typically only creating a point of difference between centres is crucial to opened in 1-2 locations in Perth - a central CBD offering and a attracting shoppers from broader catchment areas. Currently suburban shopping centre. Apple is located in Hay Street, in the 45.5% of stores in Perth’s major 16 shopping centres are exactly CBD, and Garden City. H+M has two stores, one in Forrest Place the same. Across each centre there are retailers (newsagent, in the CBD and one in Lakeside Joondalup. butcher, baker, green grocer, repairers, food and beverage options) that are operated by different owners/marketed by

Visiting the Shops - November 2017 13 More international retailers are set to open in Perth in the current development wave including Marks and Spencer, TK Maxx, Uniqlo, GAP, Sephora, Miniso, Decathlon and Under Armour. Amazon is also likely to occupy at least one physical store in Perth by the end of the decade. Current international retailers have largely been American or western European; in the future Perth can expect to benefit from expanding Asian retailers. International retailers are also partnering with local retailers. A former local tenant, discount department store Harris Scarfe, which recently opened at Lakeside Joondalup, will exclusively offer British retailer Debenhams fashion apparel. Myer has a similar deal across 6 stores with British retailer John Lewis. This approach allows international retailers to test the market ahead of opening stand-alone stores.

Attracting retailers who typically favour different retail formats (large format retail) can also boost tenant diversity in centres. Fundamentally businesses, in particular retail businesses, want to be located close to their customers. Car maker, Subaru, has opened 6 pop up shops in shopping centres across the east coast. These pop up stores give Subaru exposure to potential customers who would never visit a car yard.

The key benefit of Subaru’s pop up store strategy, is it allows consumers to experience the product, the feel of sitting in the driver seat, the new car smell or how their family would fit in the car. Experiences help people create an emotional connection to the product.

With many shopping options, consumers will visit stores based on their convenience but also the entertainment value of the experience. Time poor people are making mental calculations: is it worth tackling the crowded car park, finding the store, receive limited help from shop assistants to pay more for an item, or is it easier to go online, find the cheapest option with free postage for returns?

Shopping centres globally run the risk of devolving from places where people shop to showrooms where consumers visit the store, determine the suitability of the product for their needs/ wants and then, instead of walking to the counter, grab their smart phone and buy from Amazon.

In a world of choice, it is crucial that consumers choose your centre. Improving tenant diversity, focusing on attracting people to the centre more frequently, and offering services and experiences that can’t be found online will make your centre the “choicest”.

Visiting the Shops - November 2017 14 LIST OF SOURCES

Information for this report was collected and analysed in September and October 2017. All information sourced through the methodology above was, to the author’s knowledge, correct as of 30 September, 2017.

Information on the tenancy mix of each centre was taken from their online store directories during this time frame. Details may have changed since final data collection and independent verification of data should be conducted prior to relying on this information.

SOURCES

The following sources were used in the development of this Thought Leadership study:

>> Y Research Metropolitan Perth Shopping Centre Development Report – May 2017. >> Shopping Centre Council of Australia Sales Reporting Guidelines December 2010. >> Shopping Centre Council of Australia Australian Shopping Centre Industry Scale and Performance Measures August 2015 >> Shopping Centre Council of Australia Research Note October 2017. >> ABS Retail Trade data Cat 8501.0. >> NAB Online Retail Sales Index. >> Public records of shopping centre owners, major retailers and commercial agents. >> AFR April 24 2007 “How mall owners are fighting Amazon with carnivals and events”. >> Business Insider US February 10 2017 “National Retail Federation estimates 8-12% US e-commerce growth in 2017”. >> US Census Bureau Quarterly E-Commerce Sales 2017. >> The West Australian 13 February 2017 “Spending habits show our priorities, not pressures”. >> JLL Centre Managers Survey 2017 >> Roy Morgan State of the Nation: Australian Retail >> Torch Media Supermarket Insights Woolworths Shopper Behaviour >> The Australian 3 October 2017 “Westfield rethinks shopping centres as department stores decline”. >> The Real Deal 16 September 2017 “How to save malls? Kill the apparel store” >> ABC News 5 September 2017 “How shopping centres are changing to fight online shopping”

More information on Perth’s major 16 shopping centres are available from Y Research including the mix of store types per centre and the similarity of tenants across store classifications.

If you would like to discuss the findings of this study further, and their implications for your asset, please contact Damian Stone, Principal of Y Research via phone 0433 525 414 or [email protected]

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