Transformative Innovation in Malls - Part 1
Why do shopping centers struggle with innovation so much?
Over the years I have made many proposals and floated many ideas with clients and with employers. I have had many bad ideas, but I have also had many ideas that were simply ahead of time.
Ideas have an extraordinary difficult path to adoption; what with politics, resources and risk to consider.
The diagram below illustrates the two types of innovation. Both are desirable, but only one is critically necessary. Implementing truly transformative innovations is harder by an order of magnitude. Simple, transitional innovations are necessary, but they don’t transform a business to make it sustainable in the long run. For instance, it is important to implement recycling programs, install charging stations for EVs, but these won’t help ensure your future. Transitional innovations are necessary, but not sufficient.
The problem, as it is with so many strategic insights, is how to actually, practically make it happen. I think I have solved that riddle for shopping centres. The framework below articulates the four key elements of the shopping centre’s success. The investors (representing the providers of capital), the actual bricks and mortar place, the shopping community (patrons) and the merchants that are the primary attractors.
Transformative innovation happens when you succeed in introducing a change that involves and benefits all four these elements of the shopping centre mix. When you integrate changes that to some extent combines and involves these four elements, then you get innovation that transform.
As an aside, for the sake of completeness and transparency, it should be pointed out that simply having an idea is a very small part of the process. The biggest challenge is the cultural shift that creates a climate that is receptive to innovative ideas and a structure that enables the execution of innovations are prerequisites. But this is not a book about change management per se, so I will stick to the knitting.
The list below are all ideas (some more than a decade old) that seems to me still have merit, and all of them integrates to a greater or lesser extent these elements of the mix.
1. A Fund for Fitout Contributions:
Retailers in the current climate (2017 and foreseeable future) rely heavily on landlord funded store development.
Innovation: Create a FITOUT FUND.
That is a separate fund (with a dedicated Fund Manager) that takes equity but with a payback structure for the retailers, instead of providing lease incentives with no return. Instead of funding failing business models, invest in new concepts. Make it compulsory for a portion of the funds to be spent on professional advice (design, marketing, legal, financial, operational etc) that improves the risk profile of the fund.
2. Casual Incubator.
Casual Mall Leasing and later Pop-Up Retail has long been part of the shopping centre scene. Landlords saw this as revenue opportunities - occupying common area space and generating incremental income. It was largely a response to the luxury of high occupancy rates. Many in the industry saw this as an opportunity to ‘incubate’ future tenants. But for a variety of reasons that hardly ever materialised.
A few entrepreneurial types tried things like 100 Squared. Scentre recently launched an incubator at Chermside which I have not seen personally, but is possibly the type of innovation that could be transformative.
Innovation: Design & Create dedicated a Co-op Space
Much like Offices have become Co-working spaces where a bunch of rotating and fluctuating temporal concepts can trial themselves. The key to making it a sustainable option is to (a) support it with professional advice to incoming trial concepts (b) make it permanently available (c) prioritise the concepts that can scale for shopping centres and (d) allocate space based on potential (not first movers only) and (e) constant rotation to keep customers coming back anew.
The key feature of something like this would require the Landlord to NOT be cynical.
A real incubator must be applied the full lifecycle of new retail concepts - as per above diagram: Identify, source, screen, onboard, support, adapt, grow and iterate.
One can brainstorm various innovations once you have a specific stage of the cycle to focus on. Examples of innovations that could be applied to the various stages are:
Online Academy: Create a dedicated website for any business interested in opening in a centre to (a) learn how to do it (b) step them through actually doing it. It may even be a joint-initiative of multiple landlords, but the idea is that making a success in a shopping centre has its own unique requirements. It is not about teaching people how to retail (only) but how to do business and to ‘stress-test’ their ideas and give them an opportunity to bounce ideas off the facilitators (independently).
Retail Development Support Office: For the duration of every retail development, create a Retailer Academy/Forum for any business (comprising fewer than 3 stores) who is signed up to a deal. Offer the newbies guided, independent advice to help plan their business, design and configure it, finance it and launch it. A simple thing like navigating the recruitment process on intuition is fraught with danger and getting the wrong people on the wrong agreements at the start of the new retail business could easily be fatal (at worst) or just result in such a poor customer experience post launch that they are on struggle street to retail customer interest. (How often have you gone into a store for the first time, had a bad experience, and wrote that store/brand off never to return?
Screen for Success: We have created a subsidiary company - www.yearone.solutions to act as an external validation agency in this space. Y1S can help de-risk new retailers and assignees though better, professional assessment and validation. This mitigates risk and secures any potential landlord investment. This intervention can also be geared to guide the retailer - through the business planning process - to help get them off to a better start, particularly those who are not familiar with the constraints of trading in a centre.
We conclude the two-part series in the next post.
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