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A return to the “old normal” before the global coronavirus pandemic is neither possible nor desirable, a panel of retail leaders agreed at “Experience the Experience,” ULI Asia Pacific’s premier retail event of 2021. In a session moderated by Theo Knipfing, managing partner at +Curiosity, the panel discussed the future of retail, both online and off, and how landlords and tenants can integrate both while creating more sustainable business models.

Retail’s future will still involve a focus on maximizing footfall, but retailers will have to work more creatively to earn it. While customers will want to return to physical retail environments, “they have got much more used to the omnichannel . . . and those online channels have evolved and become more experiential,” said Roy Westwood, founder and strategic commercial and creative director at Westwood Consulting.

While creative online responses to COVID-19 meet retailers’ immediate needs for revenue, Westwood wondered, “Are we actually creating a barrier to footfalls later?” Taku Yamaumi, partner and head of Japan for L Catterton Real Estate/LVMH Japan, agreed that that is a concern. “The objective is how we attract people who are accustomed to staying in their apartment watching Netflix,” he said. “It means brands, tenants, and operators need to make special incentives for the customer to come.”

“Experiential Memory Palaces”

The solution, panelists agreed, is to optimize and integrate online and offline experiences. The demand for convenience and delivery will not go away. Retailers must provide customers with multiple options for access while also offering distinctive in-person experiences that have no comparison online, they said. Stores, shopping streets, and malls must become “experiential memory palaces” that trade on the power of presence and emotional connections, Westwood said.

The responsibility for this transformation rests heavily on landlords, said Tom Andrews, assistant general manager for commercial property at HongKong Land. His firm has initiated strategies in its portfolio of shopping malls such as starting a food hall and restaurant, he said. This shift is central to luxury retail, where his firm seeks to “create experiences that money really can’t buy,” he noted. HongKong Land’s portfolio includes the only Michelin three-star Italian restaurant outside Italy. It recently offered VIPs the opportunity to go truffle hunting with the chef, followed by a private meal.

“We need to organize ourselves in a more sustainable way going forward,” said Gerard Groener, managing director for Ingka Centres, part of IKEA Group. Part of going digital is also going deep, he said. The temptation with digital retail is to go global, but Ingka Centres has sought to target its digital engagement to specific catchment areas, making digital and in-person connections as seamless as possible, Groener said.

For example, children might come to a playground and meet a character in person, then go home and play an online game featuring that same character, he said. For adults, a forgotten item does not necessitate a return to the store to make a purchase: two clicks on an app can deliver the item to that person’s home.

“This kind of constant experience and connection with your customer will become crucial,” said Groener. In the future, malls must play the role of a town square, he added. “The times that we could all benefit from monoculture . . . are over.” What is driving people to gather goes beyond the need or desire for shopping, and now encompasses the desire for food education, health, community, and event space. “It’s a mix of things that you would see in the old town square,” he said.

Though the mall as a town center is not a new idea, visions of that concept vary and the model is emerging as a global best practice.

“For the mall real estate model to survive and thrive, landlords must ensure that their center meets the needs of the community,” said Peter Trio, designer at WRT in San Francisco and founder of the Thirdscape Initiative, who has been tracking the evolution of shopping malls around the world. “Much of this does not have to be curated by private companies but rather can simply be allowed through proper design, programming, and management.”

Absolute control is not necessary or perhaps even desirable; the best ideas respond to local needs and may very well originate outside a landlord’s offices, Trio said. The new shape of retail requires experimentation and a willingness to learn.

“There are examples like a mall in Minnesota opening up to dogs or a mall in San Antonio which opened to thousands as a food bank,” Trio said. “During these times, the needs of the community are evolving fast, and it is those mall landlords that are in tune with their communities and able to respond nimbly who will ultimately survive.”

Landlord/Tenant Relationships Will Shift

What do all these changes mean for landlords and tenants? “The key word is really flexibility,” said Andrews, including shorter lease terms. Groener said that landlords will “have to be open to facilitate much more than we’re used to” and “deepen your offer” to include changing the nature of the relationship with the tenant. Westwood suggested that landlords might negotiate profit sharing and other revenue-based agreements with tenants.

All agree that landlords will face increased responsibility to drive traffic, in part by increasing programming and making mall common areas more attractive. Landlords will have to “be there with the customer almost on a daily basis,” Groener said, meaning that annual plans and quarterly reports will likely be replaced by monthly or even weekly reviews.

“It’s got to be the responsibility of almost a joint entity between all the tenants and the landlord,” Westwood said. Together, they must create what he called “part of that area’s society’s infrastructure,” he said. “Look at the economics beyond just the ability to charge rent, to how [a retail development] actually supports the culture and environment of its surrounding properties.”

This transition will not happen immediately and there will be bumps, the panelists said. Groener cited the example of an Ingka Centres mall in Italy that recently opened a major food business. In lieu of a traditional lease, Ingka joined a joint venture with the operator, and his firm’s revenues are based on area as well as 50 percent of the joint venture’s dividends.

Adaptation will require working intelligently and thoughtfully with technology in a way that solves problems. Ingka Centres, for example, developed an app to streamline food court purchases by providing a single point of sale for all tenants. HongKong Land is seeking to reduce barriers for online brands to go offline, using its food-focused offerings as a testing ground. The firm tracks the social-media performance of resident food and beverage brands and offers monthlong pop-ups sites to top-performing shops, several of which have become successful enough to expand around Hong Kong.

However, the panelists agreed that technology is not a panacea. “The starting point should always be the customer,” Groener noted. Westwood agreed that tech can help reduce frictions and customize experiences, but “too much tech just for the sake of tech can be quite dangerous and quite gimmicky, and very expensive,” he said. The key, Anderson said, is using tech not to push, but to provide customers with better information.

How This Will Happen

The panelists considered what retail will look like 10 years from now and how the experiences of 2020 will shape it.

Yamaumi said that time will continue to be critical. As technology increases the speed of processing and of life, successful retail will need to be efficient but not rushed. Because customers may not be able or willing to stay for long periods, retail environments will need to provide experiences that boost the quality of any time spent on site, allowing customers to “focus on the quality of the coffee and the quality of the services,” he said.

Westwood agreed, given that successive generations want to own less and do more, and said that successful retail a decade hence must position itself to facilitate the convergence of those two trends.

Sustainability in all its senses will be key. It is “unsustainable for us to assume that we’re just going to be able to sell more physical goods generation by generation,” Westwood said. “We have to start evolving these models to look at how they become . . . more placemaking environments.” Those environments should also be unique for a specific location, not replicated around the world, Anderson said.

Humans are fundamentally social animals, and the desire for in-person retail and gathering spaces is not going away, panelists said. Retail’s rebound, however, will require landlords and tenants to respond to profound changes in customer behavior and preferences, to act creatively, and to take new risks. This may be easier in global cities than in second- and third-tier cities or smaller regional centers, they said. A post-COVID world is still a long way off, but evolutionary changes are already visible, even if the end point remains to be seen.

ULI Asia Pacific is offering a series of webinars starting on March 10.  ULI members can also access on-demand recordings of sessions like this one on Knowledge Finder.