Traditional markets, once large enough, generally would see merchandise segregated by type – a wool street, cloth street, leather street etc. Despite what might seem like a common sense, competing retailers of similar products preferred to locate directly adjacent to one another. This phenomenon is known as retail agglomeration and is an important guiding principle in Merchandise Districting.
Just like shoppers of the past, modern day consumers prefer to browse multiple retailers comparing products and prices when making one-time purchases of certain goods. These products are known as “Comparison Goods” and include fashion apparel, accessories, electronics, jewellery, cosmetics, home furnishings and accessories.
Many malls in the past fought against this natural force of retail agglomeration, forcing categories apart to encourage visitors to circulate past all stores and to encourage impulse purchases. This may work for certain categories such as jewellery stores, but generally today’s customers are too time poor to aimlessly circulate around a retail centre searching for a certain products.
When Best Buy purchased Canada’s Future Shop, it was generally expected Best Buy would rebrand all Future Shop stores and close those which were overlapping. After all, they sold almost identical merchandise at almost identical prices. However it was soon realized that Canadians were happily comparison shopping between Best Buy and Future Shop, searching for the best deal between two branches of the same company. This same comparison effect can be seen inside retail centres – there may be internal competition but it is far better to be on than the inside than the outside!
As public officials have little control over the types of tenants that locate on a retail street, this section largely applies exclusively to the development of retail centres. However, there are circumstances where retail consultants identify for municipalities market voids and spending leakage. This information allows municipalities proactively to plan to accommodate needed retail types in future developments. One area where this is often seen is grocery stores in downtown or less affluent inner suburban districts.
Laying out the Districts
The purest form of Merchandise Districting can be found in vertical centres where the subtle impacts of retail agglomeration are magnified 10 fold. The following example is known as Shinsegae Centum City and is by definition the world’s largest department store (although whether or not it is a true department store is debatable).
Luxury / Premium Fashion
Luxury and premium fashion retailers have a very strong preference to be located close to one another. In some cases, luxury retailers will even directly specify which key brands they require to be located nearby. Being able to secure Louis Vuitton or Chanel, for example, will often bring a flood of requests for space from other luxury retailers. In vertical retail centres, luxury fashion apparel and accessories, cosmetics, and jewellery are generally found on the valuable ground floor. Rents drop off significantly with each increasing floor and only luxury retailers can afford the rates charged on the ground floor. In standard horizontal centres, these retailers are often clustered in a “luxury hall”. These types of tenants should be separated as much as possible from value oriented price points and everyday merchandise such as grocery stores. There is a saying in retail that in post-recession America, wealthy shoppers are visiting Tiffany’s and Walmart on the same trip. While there may be some truth in this, bear in mind that luxury retail is all about image and exclusivity. People do not really buy a Louis Vuitton purse (now made in factories in China) because they feel the quality is that much superior or that the style is really that amazing (sorry, but they look ostentatious). They buy a Louis Vuitton purse to prove they fit into a certain social class, an exclusive club that the majority of society can only aspire to join. For this reason, a luxury area of a retail centre really must feel exclusive, and adjacent districts should match this upscale image.
Another key lesson to bear in mind is that luxury retail shoppers tend to be few in number but big in impact. Luxury wings often have very low foot traffic, but those who do visit spend a lot. NorthPark Center in Dallas’ customers often spend well over a $1,000 per trip. Visitors from Saudi Arabia spent $38,367 on average!
|Average Expenditures Per Person|
Standard Fashion Apparel & Accessories
For most regional retail centres, medium price point fashion apparel is the most predominant category of retailers, such as H&M, Zara, Gap, Hollister, Abercrombie & Fitch, MEXX and American Eagle. For the majority of people, brands like these are the reason people visit a retail centre. With some exceptions (H&M and Zara), these brands are not foot traffic drivers in and of themselves. Instead, they survive on the foot traffic generated by other anchors in a retail centre. They require high visibility but are willing to pay a significant premium for the right location.
At Centum City, middle price point fashion brands form the core of the centre, sandwiched between luxury retail and foot traffic driving anchors on the upper levels. Men’s clothing takes up a pitiful amount of space compared to women’s fashion. The contrast between men and women’s clothing spending is extreme in Korea, but not totally out of line from what is seen in North America. Shopping is very much a female dominated activity and even many men’s clothing purchases are actually made by women (mothers and wives).
Value Price Point Merchandise, Kids, Multimedia, Sports, Home Furnishings
The “left over” categories are those which are generally located in the less desirable areas of a retail centre. They pay little rent and do not require high foot traffic for survival. People do not generally buy a sofa as an impulse purchase, for instance. In vertical centres these uses are placed on higher floors, while in horizontal centres they may end up in a basement or at the back end.
Because these uses are destination driving, locating them in the furthest reaches actually has overall benefits for a centre as it drives traffic through the site. In effect, these uses are performing an important anchoring function.
It may be tempting to exclude these uses altogether in a retail centre to drive rents, and in certain cases it is possible (downtown regional malls, for example). However, there is a limit to how large a centre can be with fashion apparel alone. Only a certain number brands operate in any given market and as the size of a retail centre increases, the more important the “left over” categories become. New retail centres in North America often locate these types of uses in big box pads which are physically separated from other stores.
Entertainment & Leisure
The least profitable uses in a retail centre, entertainment and leisure are generally relegated to the highest floors and hardest to rent spaces. Movie theatres are a staple of most shopping centres, and those which choose not to include one are taking a significant market risk. One good example is BurJuman in Dubai with virtually no entertainment and previously considered a mall for true shoppers only. Within just a few years, new developments have rendered BurJaman’s fashion apparel selection uncompetitive. The centre is attempting to add a cinema to the upper levels to help reposition the project for a family demographic.
Urban Entertainment Centres were marketed as the latest and greatest trend in shopping centre development. Today, the marriage of entertainment and retail is generally accepted as the norm. Entertainment is moving far beyond the basic movie theatre. Innovative concepts such as Lucky Strike Bowling, KidZania and Legoland Discovery Centre are turning the entertainment world on its head.
Centum City offers an impressive collective of entertainment uses, including a hugely successful Ice Rink, Spa, Driving Range and several theatre concepts. Cine de Chef provides visitors with a combination deal where they can enjoy both fine dining and a movie in an upscale and comfortable environment.
Food & Beverage
Food & Beverage is very much a culturally influenced issue and there are no generalized guidelines to follow. North Americans are big on eating at home with their families and often bring a packed lunch to work. Per capita eating out expenditures are generally less than $500 annually. However, in countries in East Asia, people often spend more on eating out than on groceries. In many Middle Eastern countries, eating out is one of the only forms of public entertainment and, as such, is a very important social activity. Europeans spend a significant amount of time out of their homes socializing, but the idea of heading to a retail centre for fine dining might seem uncultured to some.
For these reasons, older North American malls typically had as little as 3% of gross leasable area dedicated to food & beverage uses. Food courts were primarily intended as a place for shoppers to rest before continuing on with their retail purchases. Trends are changing, however, and newer retail centres are becoming more food & beverage driven. In the Middle East and Asia, malls have closer to 12% of their floorspace dedicated to food & beverage with some smaller projects pushing as high as 30%.
Asian retail projects almost always have food & beverage located on the highest levels and rooftops. Department stores in Japan and Korea often feature beautiful green roofs and fine dining restaurants. These trends are starting to influence North American projects – one good example being Santa Monica Place (re-opened in mid-2010) which features rooftop restaurants.
One generalization that can be made about food & beverage is that cafes usually do well in almost any well trafficked location. Cafes are a great way to activate public spaces and common areas. Having people sitting in seats makes a place appear busy and active, which in turn will attract more shoppers.
In contrast to comparison retail, convenience retail carries merchandise that people buy as an everyday chore rather than an occasional leisure activity. Grocery stores, household services, pharmacies, and alcohol & tobacco are the categories most commonly found under convenience retail. These types of stores are generally best located in areas which are easily accessed with readily available parking.
Grocery stores are in themselves an important anchor and, because of their loading needs and challenges involved in getting products to shoppers’ vehicles, are generally found in the basement of vertical retail centres. In a horizontal centre, convenience type retail might be clustered around a grocery store near a major access point.