Number of new SCs remains steady

The number of newly opened SCs doubled in 2013 compared to 2012, and a similar number is in the pipeline for this year too. More competition is good news for retailers and brands, but means choosing ever more carefully where to locate stores and which retailers to sell to. A shift towards more diverse merchandising is creating opportunities for overseas retailers to bring in new formats, and for brands selling homeware, interiors, food, and fashion.

Competition is growing in the shopping centre sector, including fashion and station buildings, with as many new properties due to come online this year as last, despite the pull back in investment plans by some larger retailers due to higher construction costs. In 2013 the number of SCs opened almost doubled over 2012 from 35 to 64, reaching a total of 3,134, and the 2014 total is due to match 2013. The Japan Shopping Centre Council (JCSC) estimates that SC sales have risen to an estimated ¥28 trillion, accounting for 20.5% of total retail sales.

The most aggressive developer and the builder of the biggest SCs is Aeon, which, as well as refurbishment of existing SCs, has eight new malls due to open March to December this year, totalling more than 500,000 sqm. It will also continue with other large scale developments already announced for the coming three years including a 100,000 sqm SC in Okinawa.

Although there are fewer feasible sites for really large SCs and the average size of new developments is falling, regional city authorities are increasingly concerned about the risk of depopulation as both young and old move to the most dynamic cities. To stop the trend of emigration, cities are investing in upgrading centres to create more pleasant environments for singles, families and seniors alike. This includes re-zoning old industrial land for retail use. Retailers will still only choose the most attractive cities to enter, but at least here there is an increased supply of potential sites to develop (see Focus, Page 13)

A network of 3,000 SCs and a population expected to decline markedly over the next twenty years, means poorly located and managed malls may be forced to close or require major investment to make them work. Growing competition from online sales will only exacerbate this problem. As our focus shows, the decline in population will not be equal in all cities either. Some regional cities will see population falling by as much as 40% by 2040, and some by 10% in just a decade from now, while others, such as Tsukuba and Kashiwa, will actually grow. This will have a serious impact on local retailing and will mean that while the number of SCs will grow in the near term, overall like for like sales will fall, and later on, net SC numbers, or at least total sales space, will start to fall too as loss-making SCs close.

As competition in the most attractive cities increases, the major developers are beginning to compete directly. Aeon, Mitsui and Mitsubishi in particular are opening SCs in their rivals’ fiefdoms. Aeon’s new Makuhari Shintoshin mall is just a short 5km train ride away from Lalaport Tokyo Bay, and another 70,000 sqm Aeon SC in Kisarazu in Chiba opening this Autumn will directly impact a Mitsui SC close by.

New SCs from the likes of Aeon and Mitsui all conform to the increasing trends to maximise entertainment and services and ensure regular traffic, not just for shopping, but also turning a visit into a day or evening out. Many are including essential services like doctors, vets and even hospitals, as well as greater accessibility for stations. Aeon’s 90,000 sqm SC in Okayama, which opens in November, will be a case in point, with basement tunnels to Okayama Station and a wide array of tenants.

Retailers are responding, opening a greater diversity of store formats. Fashion retailers in particular are creating more mixed merchandise stores, selling both apparel and home accessories, as well as new formats entirely in homewares, and what can loosely be called lifestyle groceries (confectionery, condiments and so on), as well as stores with cafes, juice bars and fast food. This is providing more opportunities for both overseas retailers, who can bring in other group chains as Inditex has done with Zara Home, as well as brands in a wide array of categories such as homeware, interiors, food, and gadgets.

CONSTRUCTION COSTS FORCING REDUCED INVESTMENT IN LARGE STORES?

2014 will see as many as 60 new SCs coming online, but recent reports suggest that the number could drop significantly from 2015 onwards as construction costs continue to soar.

A report by the Ministry of Land last month showed that the supply of skilled construction workers has plummeted over the past decade. Coupled with a rapid increase in cost of imported materials due to government exchange rate policy, the Ministry’s report claims that costs per tsubo (3.3 sqm) for construction of new large scale commercial facilities have increased by 50% since February 2011 to around ¥400,000.

Both Aeon and Seven & I have confirmed that they are now reconsidering medium term plans for new large stores and SCs, with Seven & I reducing planned investment by half in 2014 compared to last year, and Aeon revising plans for 20 new SCs between 2016-18.

Chains may well switch capital investment to refitting and store upgrades, reducing the pace of new store development from 2015 onwards.