In Times of Declining Birth Rates, the Keys to Survival for Commercial Facilities are Experiential Consumption and Inbound Tourists

As consumers’ tastes and preferences continue to shift, the raison d'être of physical stores are questioned. Commercial facilities, in a society increasingly unkind to them, are looking for ways to evolve in order to survive.

July 17, 2018

Commercial facilities running dry due to considered purchases

Retail has entered a new era. The emergence of e-commerce (electronic commerce), exemplified by Amazon and Rakuten, is taking its toll on sales at brick-and-mortar stores. Over are the times when anything would sell as long as it was on the shelf, as was the case during the period of rapid growth. Consumers are now turning toward considered purchases. An impulse purchase is when a consumer goes to a store and buys a product on the spur of the moment. A considered purchase is basically the opposite—consumers severely appraise products before buying them. A consumer making a considered purchase will do thorough research on the product they want to buy, then visit a physical store and check out its performance and ease of use firsthand. Then, once they’ve decided on the product, they go home and search online to see which shop is selling it at the lowest price. More and more consumers are showing this kind of behavior, especially when it comes to expensive products. The more expensive a product is, the more likely it is to be bought as a considered purchase.

Considering one’s purchases and placing priority on buying good things at low prices may be the typical model of material consumption, but in the end, this will lead to commercial facilities getting caught up in price competition and exhausting themselves. More department stores in rural areas and GMSs (a type of suburban shopping mall) are reporting that they are suffering stagnant sales. This may be the outcome of failure to divert from the trend of material consumption. It is apparent that, in a market run by material consumption, they will end up in a grueling war, no matter how hard they fight. In order for commercial facilities to survive, they need to provide something new to consumers and find ways to differentiate themselves from competitors. One of the actions they can take is making the shift to experiential consumption.

Providing one-and-only experiences

Experiential consumption means consumption that places value on the “experiences” that are enjoyed through the purchase of products or services, as opposed to material consumption, which focuses on the possession of material goods. Commercial facilities built around experiential consumption are currently quite popular. Theme parks that let children experience different jobs, lifelong learning facilities for senior citizens, and indoor entertainment facilities using AI (artificial intelligence) and VR (virtual reality) are some examples of experience-based consumer facilities that have seen successful. These facilities were built with a focus on experiential consumption from their conception, and it is entirely possible for existing facilities to introduce elements of experiential consumption as well. For instance, the practice of commercial facilities having a social media presence—for example, posting “Instagenic” photos—is expected to spread widely. Commercial facilities that have not targeted specific groups now use social media to connect to people of specific communities, and provide events that target those communities in order to get them to visit physical stores.

Another point to note regarding the trend of experiential consumption is that it is encouraging brick-and-mortar stores to transform into showrooms. At a physical store that serves as a showroom, consumers could touch products, try them out firsthand, read the QR codes of the products they liked with their smartphones and other devices, and check out at unmanned cashiers. The advantage for consumers would be that they don’t have to carry anything home, since their purchases would be shipped to their home at a later date. Product returns would also become rare, since consumers would have seen the products, tried them, and known that they will be happy with them before buying them. Meanwhile, the stores will not be required to keep a large inventory, thereby saving labor costs. This new way to do business is win-win for both consumers and retailers, and though it is still in the experimental phase, more GMSs and department stores may introduce the model in the future.

Expanding the market by absorbing inbound tourists

It is now clear that commercial facilities have to direct themselves toward experiential consumption. However, they must also turn their attention to their collapsing local markets caused by declining birth rates and an aging society. Before GMSs and department stores are developed, precision marketing campaigns are conducted, but the declining population is making it difficult to establish the target customers that have been defined upon their opening, posing a challenge. A shift to experiential consumption could revive commercial facilities’ future prospects, but they do not have a future unless they increase their currently shrinking market. They must note, however, that attracting domestic consumers from distant areas will only result in competition over market areas, and is therefore meaningless. They need to discover new demand. The key to doing so is absorbing the demand of inbound tourists, a group that is rapidly growing. JLL Retail has a team specializing in inbound tourism. It introduces tour operators to commercial facilities under JLL’s contracted management, with the aim of having them incorporate these facilities into their sightseeing tours. The team also actively works on events, advertisements, and sales promotions at these facilities.

Shifting to experiential consumption by providing experiences that would wow anyone, and attracting inbound tourists to develop new customers—these two keys will open the door to revitalization of commercial facilities.