With the end in sight (hopefully) to the global pandemic, we could all use some retail therapy! Will community retail centres continue to be a viable option?
Heart of the Community
As the pandemic has upended the most time-tested ways of doing business across industries, even the venerable community centres (its variations are also called strip malls, neighbourhood centres or community malls globally) are having to rethink their operating model. Simply put, a community centre is a shopping centre that offers customers with a unique shopping experience including products and services, delivered in a compact area. Typically, community centres are built to be under 100,00 square feet gross leasable area (GLA) to cater to everyday needs of the local community, with a select list tenants.
Community centres create strong value for all stakeholders in the ecosystem. From a customer perspective, community centres provide a one stop shop for daily needs at convenient locations, along with a range of civic amenities and essential services beyond retail. From a retailer (or tenant) perspective, it provides strong and frequent footfalls from the catchment area, allowing smaller retailers to gain better visibility within the community as well. From a community centre developer perspective, it offers predictable revenues and relatively cost-effective operations, with the opportunity to become an integral part of the community. Finally, from the community’s perspective, it offers local employment opportunities and economic upliftment, and provides a hub for community gatherings.
Figure 1 | Community Centres provide benefits for the entire ecosystem
Facing strong competition from alternate retail options, including e-commerce, community centres need to adhere to three key best practices to ensure they thrive. Intelligent location selection, coherent value proposition and a perceptive tenant mix are all critical for a community centre to compete for the attention of its customers.
- Where are you?
- Who are you?
- Comfort | The community centre should provide a space for the local community to congregate and socialize. Popular food & beverage options along with a rotating roster of local chefs delivering pop-up stands and demonstrations drives a connect with the community
- Culture | An important element of generating buzz and keeping the community centre vibrant is curating a calendar of cultural events that place the community centre at the heart of the community. These can be across areas of entertainment, health, sports, education among others
- Commerce | Maintaining an optimal tenant mix is crucial to ensure a steady footfall through the year. A strong blend of essential goods & services, mixed with locally sourced offerings and international names provides a balanced vibe to the community centre
- Who’s with you?
Find me land and I’ll build you a dream! Selecting the right location is a crucial element of succeeding as a community centre. As a community centre is not built to be a ‘destination mall’ that will attract visitors from far and wide, selecting a location that will ensure a large captive customer set is important. Conducting an in-depth micro-market analysis becomes an important tool in the armoury of any successful community centre developer. Micro-market analysis entails segmenting the city into smaller catchment areas and analyzing each catchment area across key parameters. Some of the important parameters include population size, population density, relative affluence/ spending power, accessibility, visibility and competitive presence, among others. The ability to ensure sufficient parking spots is also a crucial factor in determining the attractiveness of a location. A comprehensive assessment of these parameters provides an effective understanding of the potential of each location and should form the basis of selecting a location for developing a community centre.
Another effective way to select optimal locations for community centre’s is to partner closely with anchor tenants, specifically supermarkets. As the frequency of new store rollouts for supermarkets is typically aggressive, their analysis and knowledge of micro-markets is comprehensive. Partnering with these supermarkets before developing the property not only allows the community centre developer to leverage the supermarkets’ knowledge but also gain a level of certainty with regards to rental incomes. Many successful community centre developers in the Gulf region develop mutually beneficial partnerships with supermarket chains to drive expansion for both.
Never in the history of humankind have there been more options for a customer in terms of where and how they can spend their hard-earned money. With the proliferation of e-commerce, the need to visit physical outlets is diminishing. Here is where community centres have an opportunity. They need to offer a value proposition that curates an experience that customers are drawn towards repeatedly. The primary reason for customers to visit is no longer ‘shopping’ but is an opportunity to experience a curated blend of ‘Comfort, Culture and Commerce’.
Figure 2 | Community Centres should provide a blend of Comfort, Culture and Commerce
Ingka Centres, a Netherlands based company, have created a successful network of over 45 locations across 15 countries, attracting about 400 million visitors annually. They serve as great meeting centres within the community, anchored by an IKEA store and embracing local communities, local authorities & partners in their entire ecosystem. Its success relies on strategic partnerships with stakeholders and delivering a clear value proposition to the community.
Targeting the right tenant mix is an important factor in community centres maintaining strong patronage from the community and profitable operations. The first step in achieving the right tenant mix is to understand the catchment area of the community centre in detail. What are the needs and wants of the community? How can the community centre best cater to them? What are the businesses that have historically performed well in the community, and just as importantly which businesses have not performed well? What is the demographic and socio-economic profile of the community? Developing a coherent tenant mix based on these factors will allow the community centre to function as the heart of the community.
An important component of the tenant mix is the weightage of service (F&B, salons, healthcare clinics, etc.) and product (apparel, electronic goods, etc.) tenants in the community centre. Typically, a strong skew towards service tenants (4 service tenants for every product tenant) is considered an attractive mix. With the proliferation of the internet and the growing affinity towards e-commerce, being overweight on product tenants can be risky. Service tenants not only provide greater resilience in the internet era but also offer the community the convenience of accomplishing multiple errands in a single visit to the community centre. The internet era has also popularized concepts such as BOPIS (Buy Online, Pickup In Store) and cloud kitchens that can prove to be interesting tenant options for community centre developers. Overall, the personality of a community centre should reflect the community it serves.
Way Forward
Like most of physical retail options, the community centre also faces threats from a shift towards e-commerce, exacerbated by the pandemic. While the impact of the pandemic will recede, the shift towards e-commerce is likely to be more permanent. Community centres will need to adapt to stay relevant and profitable.
Community centres serve an integral purpose within the community. By staying true to their purpose and ensuring a strong connect with the community, they will be able to come through this challenging period stronger and more resilient than ever. With the end in sight (hopefully) to the global pandemic, we could all use some retail therapy! The community centres could be a great option to provide that and more.
To read more such insights from our leaders, subscribe to Cedar FinTech Monthly View