How to Bring Commercial Facilities in Local Cities Back to Life

Shopping centers—a symbol of the local economy—are starting to struggle. There are vacant spaces in the buildings, and they are a mere shadow of what once used to be the busy “No. 1 place to shop in the area.”

June 06, 2019

Social environment changes substantially in local cities

The major reason why shopping centers in local cities are struggling is changes in the social environment. The youth population is shrinking as a result of the declining birth rate and aging population, the need for physical stores is going down thanks to the rise of e-commerce, and competition between super-large-scale commercial facilities is developing in the suburbs—there are a broad array of factors contributing to the slowing performance of exiting shopping centers. In particular, the shrinking youth population as a result of declining birth rates calls into question how the shopping center business should operate. “The tenants of existing shopping centers are mostly apparel retailers, and their sales are dependent on women’s purchasing power in the majority of cases. However, this kind of tenant structure no longer works,” says Taichi Iio, CEO of JLL Mall Management. Over 80% of the tenants used to be product sales stores including women’s clothing stores, but that number has dropped to 50% or below—they are no longer booming like they were before. These stores had supported shopping centers as major tenants, but they struggled over slow sales and left. It is now difficult to get other retailers to open a store in the vacated space.

“The peak in demand for physical stores was around 1997, before the bubble economy burst,” says Iio. “It was followed by long-term economic stagnation in the country, and winter has come, so to speak, to the operation of commercial facilities in general. In addition, from a real estate market perspective, retailers used to develop their own facilities and run their own businesses, but then category killers like UNIQLO and IKEA came onto the stage. Their appearance forced shopping mall operators to cut some part of their own store and lease it to other retailers. The resulting decline in the attractiveness of the facilities has led directly to unprofitable stores deciding to close or leave the location. Not only that, tenants that can attract customers on their own often open roadside stores, where rents are cheaper. Now, it has become more difficult to make a commercial facility attractive to consumers. Commercial facilities in prime location in urban areas are the only ones enjoying stability.” He notes the harsh situation that the retail facility market has been experiencing recently.

Breaking away from existing business toward revitalization

Less customers visiting a shopping center naturally results in less profits for tenants. As a consequence, more tenants leave, and it gets more difficult to fill vacated space—it’s a negative spiral. How can we save commercial facilities from this situation and breathe life back into them? Let’s draw a map to revitalization on the basis of the JLL group’s retail revitalization method.

First, we do market research. Not only do we have to gather information on the commercial area, we need to actually develop a strategy—otherwise, it will all be in vain. We assess the location, traffic, population, competitors, and characteristics of the area, and then research a quantitative need for a shopping center through on-site customer questionnaires or online surveys. We analyze the current situation of the facility, and identify issues in its “hard” elements such as its commercial environment and circulation planning. The key is finding out what the facility needs and in what points it has the upper hand against competitors. Next, we hold group interview sessions and analyze user psychology through qualitative research to understand the behavior and potential needs of consumers. We must first understand consumer psychology as well as the numerical data before planning strategies, and then consider revitalization plans, such as tenant restructuring and facility renovation.

Now, we take a concrete step toward revitalization. First, we should address the shifts in customer composition. As mentioned above, while the number of young customers is on a decline, that of elderly customers is on the rise. Inviting services industries for elderly people is one effective measure. Iio offers his analysis. “Older generations have high purchase potential. They are interested in educating themselves and improving their health, and also enthusiastic about participating in the community.” We can expect demand for clinics, as well as lifelong learning and educational services such as piano and dance lessons. In addition, food is essential for anyone, but elderly people living alone have a need for delivery services as well as a wide range of products that can be purchased in small quantities. Meanwhile, there is a great need for hands-on entertainment facilities for men and women of all ages. It is a good idea to introduce indoor amusement facilities like SEGA and KidZania, and to use common space effectively as art galleries or exercise areas to help visitors improve their health. Getting customers to stay in the facility for long periods of time creates a vibrant atmosphere in the entire facility. Furthermore, there are still a certain number of young people staying in their hometowns in local areas. Inviting tenants related to video games, cosplay, and Japanese subcultures that are popular with the younger generation is also effective. These products and services are only available in a handful of areas in major cities, such as Akihabara, and the presence alone of these kinds of retailers is valuable in local cities. Having these stores will attract customers from a wider area.

Involve the government and local community

We have discussed a method for revitalization of the building alone, but in many cases, the facility requires large-scale renovations, and the owner of the facility needs to bear the costs. There are few commercial facilities that can afford to pay large renovation costs when business is slow to begin with. If renovation is not an option, how can we revitalize the facility? Iio gives his opinion: “A facility needs to look beyond the horizon of its local commercial area.” Attracting foreign tourists, collaborating with government authorities, and trying to attract customers through independent measures are some of the key approaches. The JLL Retail group organized an international customer strategy team as a means to tackle inbound and outbound tourists. The team aims to incorporate trips to certain commercial facilities in tour itineraries and send customers by tying up with land operators based inside and outside Japan. In addition, the team approaches administrative authorities and obtains permission to use tourism recourses that exist around a commercial facility so as to enhance its attractiveness to customers through the concerted efforts of the local community. One example is a commercial facility in a local city that started to see its tenants vacating several years after its opening. The JLL Retail group conducted market research, and as a result, it was found that renovating the facility building alone would not revive the facility. According to Iio, the facility was successfully brought back to life by “Turning its attention to the bus stop for tourist buses in front of the facility and inviting restaurants, duty free shops, and other commercial tenants for foreign tourists, as well as tenants that sell anime- and game-related goods and cosplay goods that appeal to tourists from both inside and outside Japan. These steps were taken so that the facility could serve as a hub for Japanese subculture.” In addition, upon advice from the government and through negotiation with authorities, the facility succeeded in inviting a large clinic where the local residents can have a thorough physical examination to a lot that had been vacated when a major big-box store terminated the lease—the floor space that it had been occupying made up half of the entire facility. This encouraged a drugstore and other tenants that provide medical products and services, and helped the facility to achieve a 100% occupancy rate.

Introducing IT creates “hybrid” facilities

In this article, we have looked back on revitalization projects that the JLL Retail group undertook. Iio says, “There are a number of commercial facilities in the country that need to be revived, and many of them are still fixed on the traditional business model that focuses on women’s apparel.” Things that are required of a commercial facility vary depending on the local community and social environment. The key is to capture trends and make use of them in facility development. For instance, e-commerce is booming today, and more retailers are finding ways to make their physical stores and online shops work together. An online shop’s weakness is that customers cannot physically touch a product, but some stores, for example, display samples of all products, have the customers scan a QR code of the products they want with their smartphones and other devices, and deliver the products directly to the customers. This positive example of retail operations using IT is already being implemented, and it is expected that the role of physical stores will go through further changes.

Most of the commercial facilities fighting a losing battle are stuck on the conventional business model. They will be left behind, and eventually left in dust. They won’t be able to survive the fierce battle unless they make efforts to meet the demands of the times.