Data-Driven Shopping Centres: Changing Relations Between Landlord & Retailer

Despite South Africa's strong mall culture, consumers are increasingly shifting their spending from physical stores to the online environment. According to Flickerleap, there are currently 18.43 million ecommerce users in South Africa, with an additional 6.36 million users expected to be shopping online by 2021.

This begs the question: How do South Africa's shopping malls need to adapt to survive these changes? Online shopping means that malls are no longer a destination for shopping - instead, they have evolved into a destination. They are local meeting places, with wide selections of cinemas and restaurants becoming the focus of customer's behaviour. The answer lies in understanding the consumer psyche: the reason why people visit specific malls, how long they stay there, how often they visit, and how to create experiences that keep them returning.

Advanced Data Analytics

Shopping malls have always had access to data such as shopper behaviour, tenant sales and category performance, but there has traditionally been a gap in analysing this data and generating useful insights - until now.

We are starting to see a handful of forward-thinking malls leading the way with advanced data analytics used to generate revenue and gain a deeper understanding of consumer behaviours. This feeds the idea of generating more revenue to ensure elasticity in this increasingly competitive market.

Data-driven technologies makes use of tools to track customer behaviour, such as facial recognition systems, granular WiFi and sales patterns. These all show the movement of shoppers within the centres, as well as the frequency of cross-shopping between different retail categories. Another tool is able to assess all the possible combinations of stores in an area of a centre to optimise sales. A third, known as 'right tenant, right location' can estimate each store's omnichannel sales as well as model the market rent that should apply in every potential retail mix scenario.

In South Africa, many shopping centre owners are still adjusting their approach towards data-driven technologies. However, in Australia the exact opposite is happening. Owners in this continent have embraced data-centric thinking and are reaping the benefits daily. They subscribe to multiple data sources and this way are able to, through critical thought, make effective and sustainable change throughout their assets and organisations.

Governing.com reported that this year's cities that are making the biggest impact and seeing the best results are those that are making smart investments in technologies from infrastructure and citizen engagement to data storage and cybersecurity

How does this affect the real estate industry?

According to McKinsey, one major challenge for mall owners around the world is determining rent for each tenant.

"A typical mall doesn't have clear processes or a shared understanding within the organisation on how to set rental targets for each tenant; the asset-management and leasing teams, for example, often arrive at different targets. Publicly available industry benchmarks, by country or category, don't exist."

This could be about to change, as advanced analytics is introducing more accuracy around determining rent for mall tenants - simultaneously encouraging collaboration between shopping centre owners and their retailers.

The International Council of Shopping Centers outlines in its Envision 2020 report that in this digital age, there is no longer one traditional method of determining rent, there are in fact many ways which could be more accurate and based on specific data analysis of the location, spending behaviours, property values, amongst other contributing factors.

McKinsey reports that "A shopping centre owner in Asia was able to achieve a 20 percent revenue increase over five years by using a tool which set a price range for every current or prospective retailer after drilling down variables such as the type and location of the centre, size and configuration of shops, brands' price positioning, and multiple other factors"

Stephanus Weyers, Principal and Director at Office Place says: "An introduction of data-driven technologies will not only enhance the commercial property market, but also allow owners to monitor their own health. At the same time they'll be able to source and provide vital data to their retailers, ensuring that their operations allow for optimal profitability and sustainable operations."

"Retail PropTech is becoming more popular and sophisticated by the day. It now offers landlords and retail tenants highly insightful demographic profiles at their fingertips; from individuals roaming shopping malls, to information on which retail brands perform best in certain geographic areas, to tools that help pair the right retailer with the right landlord."

Forecast - why data-driven technologies are the future

The future of the retailer and shopping centre environment increasingly hinges on how owners use PropTech to make the right leasing and investment decisions. It is now not enough to break even or perhaps make a decent profit, owners can and want to know who is coming to their shopping centre, which geographic or trade areas they are coming from as well as who these people are. All these elements allow them to look at a market either for an asset they own or for a competitor.

According to BisNow, as the retail market evolves, both sides of the leasing fence have found it increasingly necessary to lean on tech - and each other - to survive and thrive. Retailers are becoming a lot more competitive and a lot more data-driven. And that is exactly where we see increased collaboration between the retailer and the landlord.