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The Mall Experience

The relevance of transit and destination malls in an e-commerce world

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With e-commerce poised to hit an all-time high and reach over $27 trillion by 2020, conventional shopping malls are feeling the heat. A significant transformation for them is important or they stand to face the bleak prospect of “abandoned malls,” as witnessed in the U.S.

There is much to be learned from the continued growth in the U.A.E. After all, the region has witnessed a retail revolution in such a short timespan, and the pace of growth that marked the shopping mall sector of the country, especially in Dubai, is nothing short of game-changing. 

A report by Dubai Chamber says the nation’s retail sector will reach $71 billion (USD) in the next four years, while CBRE estimates that Abu Dhabi and Dubai, together, have more than 626,000 square meters (roughly 6.7 milion square feet) of retail space under development as of 2016.

But the rules of the game are changing. The rise of e-commerce, set to grow from $20 billion to more than $200 billion by 2020 across the MENA region, is challenging the pillars of an industry that no doubt continues to record tremendous growth – both in footfall and tenant sales.

Regional players are evolving with distinctive market strengths, such as Noon.com, launched by Mohamed Alabbar, bringing its own dedicated fleet and extensive product portfolio.

In a fast-evolving landscape, how long can malls maintain their competitiveness, especially in the face of the e-commerce onslaught? How will the recent acquisition of Souq.com, the region’s predominant e-commerce retailer, by Amazon, the global giant that has disrupted the retail scene around the world, impact shopping mall operations? And how will the arrival of new players in the online retail space further divide the market?

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For now, the answers are anybody’s guess. We could point to the tech-savvy 200 million Arab youth and millennials to be the flag-bearers of MENA’s online retail revolution, and hope that malls would continue to be relevant for the “family shopping and outing” experience. 

But hope is small currency in the big world of business – more so today – as the region openly embraces digital transformation with gusto. Adapt or perish is the bottom line.

Two configurations seem to offer the right strategy for the mall sector to not only stay relevant and competitive, but also to sustain growth. And both are a good fit for the U.A.E.

The first are destination malls. These super-regional malls feature vast built-up areas and gross leasable space with dramatic architecture, themed interior design and a grand ambience that assures visitors an immersive experience. They typically offer a diverse mix of retail (high-end and high street), F&B choices and leisure attractions.

The “grand lifestyle experience” promised by destination malls are underpinned by the growth in their F&B and leisure spread, which enable them to demonstrate their resilience to the e-commerce onslaught. They continue to drive traffic, as destinations for families and friends to meet and engage in the retail of  their choice. In the U.S., as malls continue to reinvent themselves to become more relevant to their surrounding communities and to enhance footfall, their F&B offering has seen considerable growth since 2009.

The sustained footfall of destination malls in Dubai is also highlighted by the popularity of leisure attractions such as aquariums, ski slopes, fountain displays and indoor theme parks, which ensure novelty value and build a loyal clientele. 

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Destination malls often choose their retail tenants for their brand value, prestige and the unique experiences they offer. There is also an increasing emphasis on the design and digital aspects of stores to complement the overall theme of the mall. This even reflects in the F&B and leisure spread, as highlighted by the success of destination malls such as The Mall of America in Bloomington, Minn.; Grand Canal Shoppes in Las Vegas, and The Parisian Macao, among others. Typically, destination malls – by virtue of their large format – are not necessarily in the heart of the city, although there are exceptions right here in Dubai. However, with the fast-paced growth of cities, creating destination malls in city centers will be an increasingly daunting task.

Today, the retail landscape of the U.A.E. has mega-destination malls being developed in city suburbs, and their success in attracting and sustaining visitor footfall will depend on the unique lifestyle experiences they offer rather than purely their retail choices.

The second mall configuration that has found remarkable success is transit-oriented malls. In essence, transit malls take the mall experience to the city. The dividing line between where the city begins and the mall ends and vice versa is blurred. They are located at urban nodes, where transportation nodes, residences, offices and retail centers merge. (The Oculus in New York, Elements Hong Kong, and King’s Cross in London are all great examples of the seamless merger of city and malls.)

Dubai has a further opportunity in developing “Transit-Oriented Developments,” thanks to its highly evolved – and still expanding – metro network. Paris’s Saint-Lazare Train Station is a great example of the transit mall experience, as are some of the “neighbourhood malls” developed by MTR, one of the world’s leading railway operators, in Hong Kong.

Such transit-oriented developments call for strong coordination between city planners, transport companies and mall developers, which in turn will deliver a value-added urban node that supports not just the transit operator, but also the larger economy.

With the U.A.E.’s focus on sustainable and smart city development, and emphasis on strengthening public transport, as well as encouraging a culture of walking, the nation has a tremendous opportunity for transit mall developments.

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In response to e-commerce, it is imperative that mall operators and developers think outside the box, and we have two great models that offer strong potential for sustained growth. This transformational approach will be key for malls to thrive in the days ahead.

Hugo Van Der Shaegh is the GM at ODG, an award-winning retail consultancy and design firm with offices in Dubai, Hong Kong and Singapore. For over 10 years, ODG has been supporting developers and operators in creating and implementing retail programs around the world. Based in Dubai HQ, Hugo oversees business and operations managing a team of consultants, architects and designers to ensure growth, profitability and excellence in project delivery.

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