As shopping centre giant Intu plunges into administration, Retail Week asks whether the mall is dead?
Shopping centre giant Intu collapsed into administration in a pivotal moment for UK retail. Never before has such a large landlord failed.
Intu was saddled with unsustainable levels of debt and, while the lack of rental income over the past two quarters when many of the stores in its centres were forced to close has exacerbated its situation, the writing had been on the wall for some time.
The landlord, which owns malls such as Trafford Centre, Metrocentre and Lakeside, made a £2bn loss last year, up from a £1.17bn loss the year before. It has fallen victim to a fundamental rethink of retail property as both rents and footfall decline.
“Rent used to go up continually at shopping centres,” says Nelson Blackley, research associate at the National Retail Research Knowledge Exchange Centre.
“There used to be a waiting list of retailers trying to get into some centres. But recently occupancy levels have dropped because so many brands have gone through CVAs and restructuring, and latterly retailers have tried to reduce rents and move to more flexible structures.”
While store closures of this ilk hit all retail destinations, shopping centres are particularly vulnerable because of their reliance on bigger retailers, says Blackley.
He cites Intu as an example – at the end of the financial year, 170 of its units were occupied by just nine retailers, with Arcadia running 26 shops, Boots 21 and H&M 20.
“It means that when some of these bigger retailers hit financial problems and opt to close stores, it has a huge impact on shopping centre landlords.”
Waning popularity
Store closures, coupled with the growth of online, have led to fewer people visiting shopping destinations. And while all locations have been impacted, shopping centres have been particularly hard hit.
Between 2013 and last year, footfall at malls has declined 14.5% compared to 11.3% on high streets, according to Springboard data.
| Year on year % change in footfall | ||
|---|---|---|
| UK Shopping Centres | UK High Streets | |
| 2013-2014 | -1% | -1.4% |
| 2014-2015 | -2% | -1.9% |
| 2015-2016 | -1.8% | -1.10% |
| 2016-2017 | -1.4% | -0.9% |
| 2017-2018 | -3.2% | -2.3% |
| 2018-2019 | -2.5% | -2.5% |
| Total 2013 to 2019 | -14.5% | -11.3% |
Springboard marketing and insights director Diane Wehrle says the decline is worse at shopping centres as they have not reflected the changing ways consumers want to shop.
”There’s been a shift in consumer demand away from simply shopping to a more leisure experience,” she says. “Shoppers want more than just to buy stuff – they want an experience. They want to go out for lunch while shopping. High streets realised this and shifted their offer.”
Wehrle also adds that some larger landlords are like “supertankers” and were unable to move quickly enough to meet this changing demand.
However, action has been taken and landlords have been investing to turn their shopping centres into real destinations. In fact, Intu was attempting to reinvent its malls and had launched a Nickelodeon theme park as part of a 225,000 sq ft extension of Lakeside and an indoor ski slope in its Braehead centre in Glasgow.
Wehrle says the attention paid to premium centres has paid off as there has been a “smaller drop in footfall across bigger centres over the last couple of years”.
The one thing landlords were pinning their hopes on to save the market is the one thing that people can’t do right now – experiences. We simply don’t know when that will come back
Jonathan De Mello, Harper Dennis Hobbs
But the question is whether leisure can still be the saviour of the shopping centre in the era of social distancing.
Director at retail consultancy Harper Dennis Hobbs Jonathan De Mello suspects shopping centres may experience some short-term pain.
“Landlords were pinning their hopes on experiences and it was the right track. But the one thing they were pinning their hopes on to save the market is the one thing that people can’t do right now. We simply don’t know when that will come back.”
However, Wehrle is convinced experiential shopping centres are still the way forward. “Lockdown has highlighted the need for having social elements to shopping trips,” she says. “There’s not been a rush back to retail yet precisely because hospitality hasn’t opened.”
A return to local shopping
Coronavirus lockdown has stimulated a return to shopping locally and Blackley believes this trend is here to stay, as consumers seek a more distinctive retail offer.
Shopping centre footfall has declined heavily because the experience is homogenous, he says. “One shopping centre has pretty much the same experience as any other.”
Instead, shopping centres need to have stronger links to local communities and offer something different: “People will want high streets and shopping centres that reflect a more local offer,” he says.
De Mello believes that independent and local traders are a big plus point for shopping centres and says there is a lot of demand from these businesses to take up space vacated by retail casualties of the pandemic.
Polarisation of shopping centres
While a focus on experience has helped stem the decline at larger centres, it has taken huge investment to make them true experiential destinations. Intu ploughed an eye-watering £95m into its Lakeside leisure extension.
Wehrle highlights that it is largely premium destinations that have received investment and says that “lots of mid-range shopping centres are still predominantly retail”.
This is exacerbating an increasing polarisation of shopping centres. De Mello says his retail clients are gravitating to a limited number of premium centres they feel they need to be in.
“There is a growing divide between the primary and secondary shopping centres. My clients want to focus on the bigger, better centres – there are only about 20 of these – as a mall needs to be a marketing vehicle for their brand.”
De Mello predicts the rise of “supermalls”, which provide everything from shopping, entertainment and food and beverage under one roof.
UK retail is overspaced and some of these centres will need to be converted. Some space could be converted to customer fulfilment centres to support the growth of online retail
Nelson Blackley, National Retail Research Knowledge Exchange Centre
However, an uncertain future lies in store for the rest and dramatic overhauls could be needed.
Blackley says: “UK retail is overspaced and some of these centres will need to be converted. Both Intu and Hammerson have looked at the possibility of building homes and some space could be converted to customer fulfilment centres to support the growth of online retail.”
De Mello suggests many centres should convert space to residential.
“Some landlords have the wrong sort of space and it needs to be repurposed to provide what people in those areas want. This could be office space, but it’s more likely to be residential these days.”
There is still life left in some malls, but dramatic change will be needed to keep these destinations relevant. As ever in retail, only the fittest will survive.
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