Shopping Centers
Shopping centers or shopping malls represent a collection of a variety of stores and, depending on the size of the center, they may also include food court and entertainment facilities. In order to understand the underlying rational of the different typologies of shopping malls one needs to understand first the drivers of locational demand for retail space.
Locational demand for retail space and store locational patterns with respect to consumers depend on the characteristics of the goods/services sold and, specifically, how homogeneous (standardized) they are, and how frequently consumers need to buy them. Retailers selling goods and services bought in high frequency tend to locate quite close to consumer concentrations. Furthermore, retailers selling highly heterogeneous products tend to cluster in order to allow consumers to make the comparisons they need to make before committing to a purchase (comparison shopping). Comparison shopping should not be confused with multipurpose shopping, which refers to trips for shopping a collection of different items on a single trip.
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Goods and services sold by retailers can be classified into four major categories, based on how homogeneous they are and how frequently they are purchased ( see Carn et al., 1988):
a) Convenience goods, representing standardized goods bought at high frequency from the store located closest to the consumer (food, drugs, etc.)
b) Shopping goods, representing less standardized goods that are purchased less frequently and involve some comparison shopping (furniture, clothing, etc.)
c) Personal services, representing services purchased often from the store most conveniently located with respect to the consumer (shoe repair, dry cleaning, etc.)
d) Specialized services, representing services that are bought less frequently and involve some comparison shopping (insurance, travel, etc.)
Product heterogeneity and frequency of purchase can help us understand how traditional retail formats have arisen and how they locate with respect to the consumers. The most commonly found shopping center formats include:
a) Neighborhood centers, which are usually anchored by a supermarket or a drugstore and include a small collection of other stores selling convenience goods or personal services. Since these stores are selling goods and services purchased with high frequency, they are located close to consumer concentrations and draw the majority of their customers from a small area around their location (within a driving distance of 15 minutes). In other words, their primary trade area is small. The typical size of neighborhood centers ranges between 50,000 and 100,000 square feet.
b) Community shopping centers, which are usually anchored by a discount store, junior department store, or a variety store, and comprise stores that offer mostly convenience goods, personal services, and, perhaps, some shopper’s goods (furniture and clothing) or specialized services. Their typical size ranges from 120,000 to 400,000 square feet, and their area of influence ex-tends to about a 30-minute drive from their location.
c) Power centers, which include national tenants advertising heavily on television. Their size ranges from 150,000 to 300,000 square feet, and their area of influence extents up to a 40-minute drive from their location.
d) Regional shopping centers, which are typically anchored by one or two full-line department stores and offer a wide range of shop-per goods and specialized services, as well as some convenience goods. They typically include recreational facilities, and their size ranges from 800,000 to 2,000,000 square feet. Their area of influence extends up to a 45-60 minute drive from their location.
e) Super-regional shopping centers, which are typically anchored by three full-line department stores and offer a wider range of shopper goods and specialized services, including recreational facilities. Their size is usually greater than 2,000,000 square feet, and their area of influence extends up to a 60-minute drive from their location.
Power centers represent a somewhat newer retail format, relative to the other four. Although the aforementioned typologies of retail centers are commonly found, retail center formats are often being challenged, as retailers and developers seek strategies and shopping environment settings that will enable them to increase market share. For example, some other retail-center formats include super-neighborhood centers, which are neighborhood centers with larger anchors, off-price centers selling higher-end brand-name products at considerably reduced prices, and outlet centers, which represent a collection of outlet factory stores.
The structure of retail leases, which typically include a percentage of store sales, provides a significant inducement to developers/investors for optimizing a center’s design and tenant mix and venturing into new retail formats. Schmitz and Brett (2001) indicate that shopping center types are becoming less distinct as tenants typically found in regional malls venture into other center formats, and vice versa. Furthermore, hybrid formats targeting specific market segments are emerging.
Investing in Shopping Centers
Advantages in investing in shopping centers include:
- Investors and analysts can more easily define their primary and secondary market area and competition direct or indirect, compared to office and residential investors
- Investors, in addition to base rent, they have the extra benefit of percentage rent, that is, a from gross sales of the retailer once the gross sales exceed a certain level explicitly quoted in the lease contract, which will provide significant income boost and capital gains for the investor in the case that the center is very successful
Disadvantages and risks in investing in shopping centers:
- Rental income is not assured as a non-negligible part of it represents percentage rent and will depend whether the tenant will exceed a certain level of gross sales
- Also the effects of competition can be very severe in case a very strong competitor claims market share from a center’s primary market
- The emergence of new formats and specialty shopping centers with the risk of existing shopping centers becoming outdated, lose competitiveness, requiring significant re-structuring of tenant mix and capital expenditures to become competitive
- The emergence and entrance in the market of new more powerful mutli-national retailers with more attractive merchandising and pricing strategies may render a shopping center’s anchor tenant and the whole center for that matter considerably less competitive reducing significantly its sales
- More severe impact on property income and value from poor property management
Key Players In Shopping Center Operations
The key players in shopping center operations include:
1. Lenders who usually provide most of the capital required to develop and initiate the operations of a shopping mall
2. Tenants who rent the space in the center and sell their goods or services to consumers
3. Consumers who purchase goods and services offered by the tenants, and
4. Shopping Center Operator who carries out the day to day property management operations of the center
All players are important for the successful operation of the center, with the lender though playing a much more important role in the development of the center and much less in its operations.
Consumers are of course the lifeblood of a shopping center’s operation and without them a shopping center can not survive for long. If the center’s tenant mix, and merchandising policies are not attractive enough to attact enough consumers and achieve a critical volume of sales, then many tenants will have problems in covering their costs, including the rent they pay to the center’s owner, and will eventually vacate the space they occupy. Thus the center will suffer increasing vacancies, will provide less offerings to consumers, thus becoming less and less attractive to the public with decreasing sales. When such symptoms appear the shopping center operator’s role becomes very crucial in changing the tenant mix and adopting in cooperation with the tenants successful merchandising policies that will bring back consumers.
Shopping Center Tenant Mix
Shopping center leasing process should adhere to a particular tenant mix strategy, which takes into account the site’s the primary target area demographics and the nature of the competition.
Tenant mix is defined as the combination of store types, consumer goods and services offered at the center, as well as the price levels for which these are offered. The ultimate objective of an effective tenant mix and pricing/merchandising strategy is create a center image and tenant synergies that appeal to the different types of consumers that reside in the center’s primary and secondary area, thus encouraging multiple purchases from the different types of stores located in the center. According to the “Shopping Center Management” published by ICSC, all shopping centers include more or less the following types of stores occupying different GLA proportions:
Specialty stores
High-end stores
Women’s read to wear
Menswear
Shoe stores
Gifts
Accessories
Cards and starionery
Jewelery
Music, records, videos
Fast food
Specialty restaurants
Entertainment
Services
In designing tenant mix, the developers and operators of the center need to thoroughly examine the preferences of the center’s potential customers in the primary target area. We will refer to this group or groups as primary customer target groups. Based on the characteristics of these groups the development’s strategists need to determine among others:
1) the quality of goods and services to be provided (high gearing to high-income and eclectic households, a balance between quality and price for medium-income households, or low-quality, low-cost for low-income households)
2) whether a broad or a narrow assortment of goods will be provided
3) quality and assortment of dining and entertainment facilities
4) level of aesthetical appeal of the center
5) spectrum and level of provision of culturally
6) special-activity oriented facilities gearing to the make up of the consumers residing in the center’s primary market area, such as physical exercise and other health oriented activities
Two of major objectives of tenant mix selection is to provide an appealing clustering of similar types of stores that can provide better opportunities for comparison shopping and appealing collection of different but complementary types of stores in order to encourage multiple-purpose shopping. Some examples of collection of stores aiming at facilitating comparison shopping are the following:
- Clustering of upscale food-related businesses, such as fine dining, upscale casual dining, upscale wine bar, upscale international restaurants
- Entertainment-related retail services including specialty bookstores, video and CD shop, bicycle shop, and sports goods stores
Some examples of actual tenant mix aiming at promoting multi-purpose shopping, that is, the purchases from different types of stores at a single trip at the center, through clustering of shops that offer complementary goods include:
- Health-oriented cluster including physical fitness center, sports clothing and casual health-food dining clustering of shops and services physical fitness center, drugstore, upscale grocery store
- Clustering of quality sandwich shope, card and gift store, unisex clothing store, children’s clothing, and athletic equipment/clothing
- Home oriented cluster including interior design shop, bath shop, upscale kitchen shop and florist shop
Beyond finding an appealing tenant mix it is equally important to get a few very appealing anchor tenants, with proven record of successful product lines and merchandising policies. Securing such anchor tenants is absolutely vital for the successful operation of the shopping center and for this reason typically the construction of the shopping center will not start until some strong anchor tenants sign pre-leasing contract agreements.
Related Posts
Retail Development
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Retail Demand Drivers
Shopping Center Location
City Megatrends that will Dominate Future Urban Development
Related Books
Dollars & Cents of Shopping Centers/The SCORE: 2008
Retail Development Handbook
Shopping Environments: Evolution, Planning and Design
Parking Requirements for Shopping Centers
Developing Retail Entertainment Destinations
Megatrends in Retail Real Estate
Winning Shopping Center Designs: 30th International Design and Development Awards (Hardcover)
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Largest Shopping Centers in the US
According to the Directory of Major Malls the twenty largest shopping centers in the United States are the following:1. King of Prussia Mall in Philadelphia, PA, with 2,798,960 sq.ft. of GLA
2. Mall of America in Minneapolis-St. Paul, MN, with 2,777,920 sq.ft. of GLA
3. South Coast Plaza in Costa Mesa, CA, with 2,700,000 sq.ft. of GLA
4. Sawgrass Mills in Fort Lauderdale, FL, with 2,503,040 sq.ft. of GLA
5. Del Amo Fashion Center in Los Angeles, CA, with 2,500,000 sq.ft. of GLA
6. Grand Canyon Parkway in Las Vegas, NV, with 2,500,000 sq.ft. of GLA
7. Aventura Mall in Miami, FL, with 2,400,000 sq.ft. of GLA
8. The Galleria in Houston, TX, with 2,298,420 sq.ft. of GLA
9. Woodfield Mall in Chicago, IL, with 2,224,000 sq.ft. of GLA
10.Roosevelt Field Mall in New York, NY, with 2,189,940 sq.ft. of GLA
11. Plaza Las Americas in San Juan, PR, with 2,173,000 sq.ft. of GLA
12. Millcreek Mall in Erie, PA, with 2,139,240 sq.ft. of GLA
13. Tysons Corner Center in Washington, DC, with 2,100,000 sq.ft. of GLA
14. Lakewood Center in Los Angeles, CA, with 2,092,710 sq.ft. of GLA
15. Oakbrook Shopping Center in Chicago, IL, with 2,006,690 sq.ft. of GLA
16. Central Park n Fredericksburg, VA, with 2,000,000 sq.ft. of GLA
17. Lark Ridge in Denver, CO, with 2,000,000 sq.ft. of GLA
18. Palisades Center in New York, NY, with 2,000,000 sq.ft. of GLA
19. Westfield Garden State in New York, NY, with 2,000,000 sq.ft. of GLA
Largest Shopping Centers in the World
According to the American Studies Department at Eastern Connecticut State University the ten largest shopping centers in the world include the following:
1. South China Mall in Dongguan, China with 7.1 million square feet of GLA
2. Jin Yuan (Golden Resources Shopping Mall) in Beijing, China with 6.0 million square feet of GLA
3. West Edmonton Mall in Edmonton, Alberta, Canada, with 3.8-million square feet of GLA
4. Cevahir Istanbul in Instanbul, Turkey, with 3.8-million square feet of GLA
5. Berjaya Times Square in Kuala Lumpur, Malaysia, with 3.4-million square feet of GLA
6. Beijing Mall in Beijing, China, with 3.4-million square feet of GLA
7. Zhengjia Plaza (Grandview Mall) in Guangzhou, China, with 3.0-million square feet of GLA
8. King of Prussia Mall in Philadelphia, Pennsylvania, USA, with 2.8-million square feet
9. South Coast Plaza in Costa Mesa, California, USA, with 2.7-million square feet of GLA
10. Central World Plaza in Bangkok, Thailand with 2.6-million square feet of GLA
Return from Shopping Centers to Property Investing
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