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 Feature Industry Articles 
Tuesday, March 17 2015
Shopping Center Technological Innovation and Progress in 2015

By Mike Kercheval, President and CEO, International Council of Shopping Centers

2015 is slated to be an excellent year for the shopping center and retail industry. Not only are key U.S. metrics on the upswing, but shopping centers and retailers are continuously adapting to new trends and technologies that are making the consumer experience more efficient and enjoyable. Omni-channel solutions are allowing consumers to shop when, where and how they want, with the store remaining in its pivotal role, and shopping centers and retailers are adapting themselves to become experience centers that offer much more than just shopping.

Strong Industry Indicators
Although there is constant chatter about the growth of online retailing and its effect on brick-and-mortar stores, there is no evidence traditional retailers are losing out. According to the U.S. Census Bureau 94 percent of retail sales occur in-store and 87 percent of consumer purchases are made at the shopping center. Of course e-commerce sales are growing (at about five times the rate of in-store growth) but if you dive deeper, you can see that the amount of e-commerce sales growth is dwarfed by sales growth increases in stores. E-commerce grew by $38 billion in sales versus $144 billion in stores. 

What’s more, e-commerce has become complementary to brick-and-mortar retail as omni-channel customers tend to shop three times more frequently and spend three and a half times more on average than single-channel shoppers.

Other core metrics show positive signs for 2015 and beyond as well. At the end of 2013, net operating income, one of the ways to truly define success in our industry, posted its highest growth rate since 2008, rising seven percent to almost $18 per square foot, while sales at U.S. malls have been the highest we have ever seen since we began recording the metric in 1996 at almost $480 per square foot. 

On the supply and demand side, conditions are equally positive for the industry. Demand for shopping center space is vastly outpacing supply and, according to the ‘National Retailer Demand Monthly’ report by RBC Capital Markets, retailers plan to open more than 77,500 in the next 24 months. Occupancy rates have also been steadily rising, and as of last year, total-industry occupancy rate is back above pre-recession levels at 92.5 percent.
But going beyond the numbers, there is a deeper story about the health and vitality of the shopping center and retail industry that is core to its success this year. The industry’s ability to adapt to new trends and expand its role in the consumer experience space is ensuring that it remains relevant in the years ahead.

The Power of Omni-Channel
Just as baby boomers instituted a massive shopping center renaissance 30 years ago, millennials today, who are an even larger demographic than the boomers, will turbo-charge our industry, but in new ways. Millennials are the driving force behind omni-channel offerings, where mobile, online and in-store experiences complement, rather than compete with, one another to provide an integrated experience that caters to consumers and their hectic, always-on lifestyles.

The omni-channel approach we are witnessing is a response to the changing desires of today’s consumers who want what they want, when and where they want it. The ICSC report stats confirm the consumer is truly king: 48 percent of consumers have ordered online and picked-up in-store; 37 percent use the internet for research and then buy in-store, or web-room; and 35 percent have ordered online, but returned it to a store. In-store conversion rates are four times higher than online-only conversion rates; for shoppers who bought merchandise on-line but returned it to a store, 95 percent made purchases at the store on that return visit. 

Today we’ve already seen a dramatic shift with many retailers beginning to embrace and invest in technology to rival, and even surpass, the advantages of online retailers. For example, the Home Depot has outfitted each of its 2,000 stores in the U.S. with “First Phones.” These Wi-Fi enabled Phones function as inventory trackers, walkie-talkies and cash registers. Walmart and Dutch retailer Ahold are also starting to install scan-it-yourself technology in their U.S. stores. Ahold has reported that scan-it shoppers spend an average of 10 percent more than other customers.

Web-rooming, where shoppers research online and buy in-store, is also an important component retailer developers are embracing, by installing Wi-Fi in their stores and shopping centers to ensure that product offerings are the same on the web or in-person. Adopting this philosophy appears to be critical given what we now know of consumer behavior. Last year global management consulting firm Accenture confirmed in a survey that consumers are beginning to tire of online shopping but still want the shopping experiences to match the convenience of online. The study found that 78 percent of U.S. shoppers had web-roomed, combining the best of both worlds. And with today’s advancements in technology, brick-and-mortar stores are starting to deliver on that desire.

The issue of instant fulfillment has been lessened in the e-commerce era. However, while the consumer may be more conditioned to receive their goods later via the mail, they are also becoming increasingly insistent that the delivery be same-day.

With an eye towards increasing consumer convenience, retailers and mall operators are rolling out same-day delivery service for shoppers to have their purchases delivered to their home, office or anywhere they like.

What this means is that stores can now double as distribution centers, and given the number of stores that many of these retailers operate and their proximity to consumers, malls and shopping centers could potentially position themselves as the most efficient distribution model available.

As the in-store model is being tailored to better match on-line’s convenience; it is no surprise that e-tailers are looking to move into physical space to get their share of the “experience” portion as well. E-tailers like Bauble Bar, Boston Proper, Bonobos, Warby Parker, Frank and Oak and of course Microsoft, with 51 stores, are all moving into physical store spaces. 

The overall good news for our industry though is that the in-store experience is still the most highly sought shopping channel. Seventy-eight percent of consumers prefer to shop in-store citing the goal to fill an immediate need or want and to provide a “one-stop” shopping trip whether it is for everyday staples or discretionary goods and services. The number-one reason they indicated doing so is to touch and try the merchandise before buying (73 percent indicated this desire). 

An Experience Center
To truly engage consumers and make their experiences memorable and repeatable, shopping centers and retailers are transforming their centers’ aesthetics and offerings. Visionary architects are building new and remodeling old structures with the local lifestyle in mind. Fresh water streams, open air centers and retractable roofs make shopping centers of the future a relaxing and enjoyable place to spend the afternoon with friends and family. 

Additionally, shopping centers and retailers are enhancing the consumer experience by providing diverse activities, entertainment options and services that appeal to all consumers. From up-scale dining options, movie theaters and sports complexes to dry cleaning services and pharmacies, the shopping center is becoming an experience hub and one-stop shopping destination to spend quality time with family and take care of the many errands and responsibilities that take time from our lives.

What’s clear is that our industry has not just reacted, but it has adapted, and is quickly evolving, making the in-store experience seamless and more efficient. 

This will continue to be the case as retailers and shopping centers add more technology and service offerings to keep the consumer engaged and connected through an integrated experience. 

MICHAEL P. KERCHEVAL, is the President and Chief Executive Officer of the International Council of Shopping Centers (ICSC).  He joined ICSC in January 2000 and was elected to the position of President and CEO in May 2001, becoming only the third CEO in the association’s almost sixty year history. 

Founded in 1957, ICSC is the global trade and professional association of the retail property industry, with over 60,000 members in more than 100 countries.  ICSC provides research, education, advocacy and business-development resources to the individuals and companies who make up the world’s shopping center and retailing industries.  ICSC is a global association, headquartered in New York City with offices in Mexico City, Toronto, Beijing, Singapore, Dubai, Brussels, London and Washington DC.  The organization has an annual budget of US $70 million and full-time staff of 150.

Posted by: AT 10:09 am   |  Permalink   |  Email
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