Guest ArticleNewsRetail

How major shopping centres outcompete smaller retail strips and main street/high street precincts

(…and what to do about it)

If you were to stop someone when they’re out shopping and ask them why they shop there, you’d probably get a blank look! If you dig deeper, it generally comes down to a few things, in the eye of the shopper anyway, such as…

  • close by
  • easy to park
  • have what I need

But these aren’t really the answers you’re looking for, as people choose where to shop based on a number of different factors, many of which they’re not consciously aware of. Some of these more unconscious factors include…

  • comfort, for example is the shopping centre enclosed and air conditioned?
  • are the shop trading hours convenient and predictable?
  • is there a choice of shops, so that if you can’t find what you’re looking for in one, there’s another one you can try?
  • can you get all your shopping done in the same place?

Major shopping centres are acutely aware of all of these factors and ensure that they tick all of these boxes (and more). And of course they also face the same big threat that all retail precincts face – the lure of internet shopping.

So, what is it about major shopping centres that enables them to continue to thrive where smaller centres and independent retail precincts face challenges. Here are a few factors…

1) Control over the retail mix

Successful shopping centres maintain close control over their retail mix. They are able to look at the retail offering overall and decide – at least at lease renewal time – whether to continue with an existing retailer or swap out to a different type.

Separately owned shops in a retail precinct are governed by the decisions of each landlord – there is very rarely (I’d say never*) any consultation between these landlords to influence the overall retail mix. This is why independent shopping precincts are often missing particular retailers or have an overabundance of a particular type of outlet.

That’s not to say you can’t have more than one of a particular retail type, in fact it’s often good for there to be a few similar places. The common examples are shoe shops and fashion outlets – people shopping for shoes and clothes generally want the chance to peruse a number of different places before buying, and so locations with a number of similar shops generally are better for all of the shops than if there was only one retail outlet.

An example – in one suburb there had been two men’s outfitters for a long time and one then closed its doors. What happened next? The ‘obvious’ answer is that the remaining outfitter took all the men’s clothing business in the precinct and doubled its business.

That wasn’t the case however, as the remaining outfitter saw a decrease in business. Why? Because shoppers decided to go where there were more men’s fashion shops so they had more choice (although it may also have been due to the sight of an empty shop giving shoppers the impression that the precinct was no longer ‘thriving’ – we’ll cover this in more detail in a future article).

Also major retail chains have a very clear idea of their best positioning. Many years ago I was speaking to the regional manager of a large optometrist chain and he explained their best location… directly opposite their main competitor.

2) Consistency of opening hours

Major shopping centres, in common with major retail franchises, insist that their outlets are open for certain minimum hours. What can be seen as an upside of owning a shop in an independent retail precinct is that the landlord does not generally impose minimum trading hours on the tenant, as long as the rent gets paid. However this is a double-edged sword, and major shopping centres know this. Shoppers need consistency and need to know that shops will be open when they expect them to be**.

I experienced this personally when I moved to a new suburb. I automatically assumed shops in the main retail precinct would be open regular hours on a Saturday, namely until 5pm. When I drove in at 3pm to pick up some bits and pieces for our new home I was shocked to see that not only the hardware store but also most of the other shops were closed (almost all the shops closed between 12pm and 1pm on a Saturday).

So what did I do? I drove to the nearest larger shopping centre and bought what I needed there. What didn’t I do? I didn’t go back to the local precinct for anything ever again – the retail precinct had effectively completely lost my business.

Interestingly, in the same precinct there was one shop that was part of a chain that was obliged by the parent company to stay open until 5pm on a Saturday. That chain – a toy retailer – finally pulled the pin when it saw a consistent underperformance in that particular outlet, caused no doubt by the almost total lack of foot traffic on Saturday afternoons.

3) Convenience and comfort

I’m lumping these two together as these are more intangible than other factors.

Convenience – really covers ‘is it close to where I live or work?’ and you can’t do much about that. But it also means ‘how easy is it to get to and from?’, ie is parking easy and/or are there good public transport links? Parking is an ongoing bugbear with many independent shopping strips and can be a big disincentive for shoppers if they have to hunt around for a parking spot or have a parking time limit to think about.

Even though it’s not unusual to have to hunt around for a parking spot in a big shopping centre and then to have to walk 500m to get to the shops, shoppers in smaller precincts tend to think they should be able to park right outside the shops they want to go to! Go figure.

Comfort – in the heat of the Australian summer, an air conditioned shopping centre has a big advantage over a suburban shopping strip, and as a result the most successful shopping centres have everything you could possible want including food, entertainment (eg cinema) as well as the regular shops, to keep you there for at least the standard ‘x’ hour free parking period.

Individual shops in smaller strips can of course install air conditioning, but there is a hidden downside – to keep a cool interior you have to keep the main door closed, and this is a major disincentive to passing shoppers being able to come in and browse.

You then have a choice – keep the door open and wear the high aircon cost or if the door remains closed make sure the front of the shop is very brightly lit and it is crystal clear that you are open for business. It takes passers-by a split second to decide whether or not a shop is open, and if yours looks closed, then you won’t be getting too many walk-ins.

4) Promotion

Successful shopping precincts and centres know that they need to continually promote themselves as a shopping destination, so they can remain top of mind by keeping shoppers informed on all sorts of things, like events, new stores/facilities, centre promotions etc.

Most larger shopping centres have a marketing fund which is used to cover the costs of promotion of the centre itself, and tenants at these centres will often see an extra line on their rent invoices for ‘marketing fund contribution’ or similar. Although common in larger centres, this is often not present for smaller shopping strips and of course there is no equivalent for independent retail precincts.

In Summary

These are just a few reasons why it is difficult to compete with larger shopping centres if you are located in a smaller strip or in an independent retail precinct, where all the shop units are owned by different landlords.

Shops in smaller precincts can fight back by joining with other local shops to promote the precinct as a whole, for example by running joint events, giveaways, building an email database and a following on social media, and staying in regular contact with interested shoppers through these channels. There’s more information on this approach in our previous article ‘Are you a retailer in a smaller shopping centre? You should work with your fellow retailers to get people to ‘BIE”.

*that we’re aware of!
**the same often applies to franchises like McDonalds, KFC, Dominos etc. who stipulate that their franchise outlets must all keep the same hours – the reason why people go to these outlets is that they know exactly what they will experience in terms of price, food quality and the whole experience – in other words ‘consistency’

This article first appeared on Bateson Consulting here.

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