The Retail Transformation Blog

Advice and insight to help retailers thrive in the new age of retail.

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Adapt or die – the new business models shaping retail real estate.

The growth of digital has created complex customer journeys and cross-channel behavior, interspersed with disruptive new players looking to capture value from the retailer-consumer relationship; in response, retailers are being forced to evolve and innovate the role of the physical store.

Nowhere else is the impact of the changing role of the store being felt more than by retail real estate investors including shopping malls, retail parks and high streets, and this pace of change is placing real strain on the traditional landlord / tenant commercial business model. To survive and thrive, landlords must go beyond making incremental changes, but instead explore and embrace radical new solutions.

There are three key areas landlords need to explore – creating robust ecosystems, re-purposing space, and developing new leasing models.

1 Online marketplace and ecosystem

eCommerce will continue to grow over the next few years, yet only 17% of consumers are strictly digital-only.1 As the role of the physical store evolves, so too does the physical mall environment, and successful mall operators can bridge the gap between online and offline to create a synchronised shopping experience.

Retailers are exploring marketplace models to vastly increase their assortment, win new customers and have better end-to-end control of the customer experience. One-third of retailers are actively seeking to build robust ecosystems, and 82% of retailers believe ecosystems are critical for disruption.2

This also presents an opportunity for a coordinated digital offering for mall owners to build an online marketplace, which could work in synergy with physical malls to offer a seamless customer experience.

There are several potential B2C and B2B marketplace models for mall owners to consider:

  • The Traditional Marketplace Model, which enables third-party sellers to sell products on a fixed-price online marketplace. A great example of this is the Amazon Marketplace, which also offers fulfilment by merchant or fulfilment by Amazon. It is key to bear in mind that the marketplace operator, in this case Amazon, owns the customer relationship, including customer service.
  • The Affiliate Model, which provides an online platform to connect customers with retailers’ websites, such as UK mall operator intu.co.uk, which generated more than £9m in partner retailer sales from over 5m website visitors.
  • The Integrated model, which provides visibility of stock to the customer through real-time inventory updates, but the retailer completes fulfilment. This presents huge benefits by increasing footfall, however has substantial drawbacks through its increased complexity. ECE’s digital mall, for example, currently lets customers see stock availability and reserve items to purchase in-store. ECE’s app has more than 24 participating retailers integrated. It offers in excess of 500,000 products and generated 300,000 hits in its first year.

It is important to get on the front foot and build robust ecosystems which allow landlords to form relationships with partners, including retailers, technology companies and peers, that will help drive footfall, increase spend and enhance the customer experience.

2 Repurposing Space

Changing consumer behaviour and digital channel shifts are causing declining footfall and rising vacancy rates at malls globally, and the pressures caused by channel shift are only going to intensify. It has been predicted by WEF that digital commerce is expected to account for 40% of consumer spend by 2028 in developed markets.3

Indeed, many markets are significantly over spaced, for example in the US it is expected that up to 25% of 1,100 shopping malls could close by 2022 or will evolve their built use.

Mall owners are now considering various uses to repurpose space. In the UK for example, real estate investors are converting old/closed B&Q stores such as Wandsworth or Trafford into revenue-generating residential developments.

As ‘Fulfilment by Amazon’, which is growing at 38%, is a key driver of revenue growth for Amazon, the business has converted many former mall sites into last mile fulfilment centres. Recently, Amazon has constructed on two shopping centre sites in Ohio. Furthermore, mall operators should explore supporting omni-channel fulfilment.

Mall operators must also respond to some of the major shifts in consumer wants and needs. The shift in spending towards well-being is a great example. To increase visitor frequency, Westfield Topanga Mall expanded into a mixed-use development and introduced The Village – a health-focused area with ‘micro-fitness’ studios, two gyms and a health clinic. The Village increased Topanga’s customer visits by 3.6% in 2017 (an additional 7.5m visits). Other such consumer trends might include healthcare, wealth management and community services.

It is crucial to create the blend of asset usage mix, and there is not a ‘one size fits all’ approach. The drivers for each will be developed on an individual site by site basis.

3 Leasing models

As consumers value experiential over transactional, mall operators face a shift in responsibilities from merely renting space to investing on curated placemaking and should be rewarded accordingly. However, this is also dependent on retailers evolving their organisations and integrating online and offline P&L ownership. Furthermore, the real estate valuation model would need to change (but that is not being discussed here).

Models are being tested by leading mall developers, which include:

  • Flexible lease terms for new types of occupiers that are emerging beyond the traditional tenants. Brands appreciate the RISPO (Research In-Store Purchase Online) impact and the importance of having a physical presence. Many landlords are facilitating pop-ups through flexible leasing such as “The Edit” from Simon Property Group, which helps launch pureplay and international brands to consumers.
  • Evolution of the traditional percentage rent models, from a pure sales volume only based metric, when considering a store’s contribution to an omnichannel sale. Focussing on store sales ignores the multi-functional role of stores, such as click-and-collect and in-store online sales in percentage calculations
  • Geo-fence percentage rent models include all sales within a geo-coded catchment area. A different percentage rate would be applied to different categories of sale, e.g. click-and-collect, kiosk, etc. to account for the store’s contribution to different touchpoints
  • Alternative performance metrics to allow mall operators to be rewarded for delivering a stronger customer opportunity. Metrics to be considered could include – net shopping hours, active footfall, lifetime customer value and customer acquisition volume, and basket size

Currently, these models are only theoretical or being tested by a small number of landlords. However, for the long-term success of landlords’ business models, new economic leasing models must be developed.

In the end, shopping destinations will continue to evolve beyond just traditional shopping to survive. New uses are increasing every day, including entertainment, showrooms, pop-ups, fulfillment, F&B, health and lifestyle. The challenge is to find and adopt the right model to facilitate your business to thrive in this era of the new retail normal.

For further reading on this topic, read our blog Do shopping mall operators need a digital strategy? 

FIND OUT MORE about Javelin Group’s Shopping Venue Futures service line. 


(1) Accenture Strategy 2017 Global Consumer Pulse Research
(2) Accenture Strategy 2018 Ecosystems Research Industry Report
(3) The World Economic Forum, Accenture Strategy 2017 Shaping the Future of Retail Report