Business 001: Digital Technology and Retail Malls

Traditionally, location and tenant mix are the two most important factors that determine the success of retail mall businesses. Even though these factors remain important, the use of digital technology is allowing weaker players to level the playing field in the industry.

Facing Digital Disruption

Retail mall business is only concerned with the management of physical space in the past. However, with the proliferation of online retailing, the industry struggles to handle digital disruption, with various malls adopting a spectrum of strategy. At one extreme, we see retail malls embracing the online platform by rolling out “click & collect” programs, allowing shoppers to make purchases online but collect the goods at the physical store. At the other extreme, there are malls which reject digital technology entirely. Most retail malls adopt some forms of digital technology to complement their business, but at this stage, there is no indication which strategy will come to dominate the industry, and all malls are expected to tread carefully into this area.

Connecting with Shoppers

Omni-channel marketing has been gaining attention in the industry. Technology is empowering retailers to connect with potential customers with more targeted and personalised messages, across multiple digital platforms. Compared to Above The Line (ATL) marketing channels, digital marketing is likely to be more cost effective. The software tools to design, orchestrate, execute and analyse omni-channel marketing campaign is also readily available in the market. Should the mall management not have any IT expertise, these software are also available in cloud subscription models.

However, even if a retail mall wish to embrace such technology, the direct impact on retail mall revenue is still limited. The mall would ultimately require cooperation of its tenants as the core content of all marketing campaign is still made up of the products and services of the shops in the mall.

Loyalty program is another avenue for retail malls to grow their business organically. You can see that almost all of our local retail malls have some form of loyalty program. This is a great initiative for the mall, as a little bit of investment into a Customer Relationship Management (CRM) system to hold the data of all the loyal members will allow the malls to gain deeper insights through analytics and provide leads for future marketing campaign. The loyalty program also provides great value and cost efficiency, as any promotions, e.g. “10% off” will yield the desired outcome and limit the cost to strictly 10% of sales, or what ever the ratio depending on the promotion.

Besides the CRM system, technology plays a part in helping the retail malls acquire and retain loyal members through websites and mobile applications. The key to success is to provide great user experience, keep the contents fresh, and deliver proper information to the right target audience.

Expectations of Tenants

The expectations of tenants have also evolved, creating another set of challenges for the retail malls. The trend of pop-up store is expected to pick up, as more online retailers look to physical stores to complement their sales activity, such as organising flash sales, set up show room and etc. Traditional lease duration and lease terms do not appeal to this new segment of tenants, which will be looking for shorter leases and lower rentals. However, as retail malls cater to the needs of online retailers, the management must take note of the potential backlash from existing tenants. This poses a dilemma which may eventually cause a paradigm shift in the business model of retail malls.

Most retail mall rental rates consist of a variable component that adjusts according to the sales turnover of the tenant. However, as shops are increasingly looking to close sales through their online platform, the physical shop spaces in the malls will function as show rooms and storage space instead of a venue for transaction. The malls will no longer be able to accurately measure the sales performance of their tenants and price the rental accordingly. This is certainly a tough problem with no clear resolution available.

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