Will mall retailers survive the competition and property stagnation?
It has been foreseen that almost half of all shopping malls in Greater Kuala Lumpur are headed towards insolvency and possibly foreclosure in the following decade. The general decline of shopping malls worldwide is not some random occurrence but an ongoing trend that has been precipitating for some time and is now leading to a downward spiral. The real scenario for malls worldwide looks somewhat bleak or uncertain as global trends continue to gravitate towards online shopping. Tumbling profit margins among mall operators as well as stiff competition from rival shopping malls have also created a less than conducive atmosphere to run a sustainable let alone profitable mall business. The continual proliferation of shopping malls amid an oversupply of retail space has also led to an inevitable downsizing and eventual downfall in the real estate marketplace.
A gloomy outlook for malls
It has been popularly predicted by leading retail analysts that more than half of America’s shopping malls are bound to fail and face foreclosure. This doomsday prophecy has also been shared by industry experts and investment iconoclasts which includes the likes of Warren Buffett and Michael Bloomberg. The death-knell to American shopping malls is sealed when retail giant Walmart lost one of its key or principal shareholders who sold out close to USD1 billion worth of stocks. Meanwhile, research analysts also forecast that almost a third of China’s shopping malls will go bankrupt due to oversupply, aggravated by the rise of online shopping. With over four thousand shopping malls and counting, China is clearly leading the international ‘mall ratpack’ which includes United States, The Philippines and of course Malaysia. Another seven thousand malls are expected to open to the general public by year 2025, bringing the total number of Chinese malls to a whopping ten thousand! China currently contributes some forty percent of total malls globally, and continues to churn out more malls in the foreseeable future, registering a staggering mall output of nearly sixty percent!
Online shopping is abuzz
In the wake of a global online trend of online shopping led by Ali Baba Group, more and more online shopping portals as well as electronic malls are sprouting and mushrooming all over the world. Malaysia is also not spared from this so-called e-shopping phenomenon. As standalone ‘brick-and-mortar’ malls go on a gradual decline from a state of oversupply, virtual malls on the other hand are experiencing an instant windfall and an overall boom in business. Since E-malls do not require much physical infrastructure or financial resources to operate, they present the ideal platform and retail option for the modern shopper. Home shopping is, as they say, “Shop at the click of a button!” Shopping in the age of the Internet is pretty cool and convenient to say the least. Also, home shopping channels like Astro Gold, Enjoy TV and CJ WOW SHOP have become the industry’s buzzword and gold standard. Cable television and internet streaming networks have also brought about much retail presence and instantaneous publicity to their respective on-air and online audiences, with a strong target market as well as enthusiastic downline shoppers. Some of the best e-shopping portals popular with Malaysians are Zalora, Lazada, 11st Street, GemFive, Lelong, MUDAH, NILE, Shopee, EasyMall, SuperBuy, Qoo Malaysia. Impending trends and technological breakthroughs like IOTs (‘internet-of-things’) will further impact the proliferation of future shopping malls throughout Malaysia and within Greater Klang Valley.
The survival of the fittest
Today, the Klang Valley houses close to 250 shopping malls with a total retail space in excess of sixty-five million sq. ft., with an average occupancy rate of about eighty percent as of 2015. Whilst the average occupancy has fallen drastically in 2016, the number of mall openings has increased dramatically. From 2016 to 2018, another hundred shopping malls with thirty million sq. ft. will have been completed. Finding a brandworthy anchor tenant to complement a new upcoming mall poses a real challenge. A strong anchor tenant either makes or breaks a mall. Survival of the fittest mall among other mediocre malls means that for a mall to be successful and sustainable, it has to strive for excellence but not necessarily attain perfection. Excellent anchor tenants often create outstanding shopping malls. Since most modern malls are capital-intensive, resource-laborious and revenue-consuming, major real estate firms and big-time property developers are more likely to undertake such huge projects with much confidence without going financially kaput or ending up bankrupt. More often than not, it is these mega developers which help bail or buy out smaller players with their sometimes unprofitable neighbourhood malls. Developing a mega mall is always an expensive venture and exorbitant affair to begin with, which require massive amounts of startup capital and private funds. Mega malls make up about 20% of all shopping malls, and are earmarked to capture almost 80% of the total retail mall market.
Future of shopping malls
The success of any shopping mall greatly depends upon varying factors such as locality, brand merchandising and mass target appeal. Only the major malls have the necessary prerequisite to survive and thrive in an ever-competitive retail marketplace. Compared to just a decade ago, whereby the retail mall sector is experience unprecedented growth, nowadays only the big retail players are able to maintain a thriving mall business amidst challenging times within the property industry. These days the impending trend for real estate developers is to build bigger and better malls, with niche product offerings and more attractive services to match or counter their closest competition. Major mega malls such as IOI City Mall, Mid Valley, Suria KLCC, Pavilion KL, Nu Sentral and One Utama have mighty financial prowess, economic resource and social influence to sustain an iconic yet landmark shopping mall. The rat-race of shopping continues to be played out among elite mall developers in ensuring their continued survival and dominance in the over-crowded retail mall market. The confluence of transit-oriented developments such as the MRT and LRT also encourages more shoppers to take advantage of public transportation to access their favourite mall destinations.
Larger malls also tend to possess the bigger slice of the pie or market share owing to their greater footfalls. Furthermore, the inflationary effects of economic recession, as well as the implementation of GST, have caused substantial or significantly reduced spending power among most Malaysians. Coupled with increasing rental rates of retail spaces, mall retailers have been experiencing freefall in their profits lately. Many retail outlets or shoplots within existing and newly-open shopping malls are either unoccupied or left vacant for long periods due to poor shopper traffic. Compounded by intense competition from hypermarkets, wholesale retailers, premium outlets and online shopping, it seems that standalone shopping malls are gradually losing their appeal among the mass population, in particular the younger generation and specifically the millennials.