Aeon: switching to city centres

Shopping centres are at the heart of Aeon’s business. By late 2016, Aeon will have completed a series of large scale malls stretching across the country, including improved entertainment features, better location targeting, and improved integration with other retail banners in the group. The only problem is that 70% of Aeon’s existing malls are in areas where populations are set to decline markedly by 2025 and it is nearing capacity in the regions, explaining the retail giant’s new found enthusiasm for city centres.

Aeon is at the peak of its growth right now. Journalists have even coined the phrase ‘Aeonists’, referring to consumers who do almost all their transactions at Aeon owned stores, buying everything from groceries to medicine, loans for their homes, pet care, in-mall playgrounds for kids, and even funerals at Aeon.

Shopping centres, both as places to put many of its own retail banners, as well as properties to generate rental income, are a core part of Aeon’s strategy. It laid claims to a new era in shopping centre development and management with the opening of Aeon Mall Makuhari Shintoshin in December. In March, it added Aeon Mall Wakayama, again claiming it to be the highest quality mall in the country so far, and becoming the dominant retail facility south of Osaka overnight. Both new developments are likely to be eclipsed by the upcoming addition of Aeon Mall Okayama in central Okayama City in November. Aeon Mall Okayama will be the single largest shopping centre in west Japan upon completion, and the first large-scale SC opened by Aeon in a city centre. But even this massive new SC will be more tightly targeted than the one type fits all model of the past.

Aeon Okayama is only 15km from Aeon’s Kurashiki property, so the location and tenant mix of the Okayama mall is designed to avoid the two SCs cannibalising each other – although with a target of 20 million visitors a year, Aeon is still hoping the new mall will draw from much further afield than Kurashiki alone. On completion the property, which sits on a 46,000 sqm land site combined from ex-factory land and land acquired from JR West, will offer 88,000 sqm of sales space over 10 floors including two below ground. It will have 350 specialty retail tenants, a cineplex, a 600 seat theatre, and house a Okayama Broadcasting TV studio.

Okayama may be Aeon’s biggest city centre mall so far, but it is also simply the latest in a series of SCs that have opened across the entire archipelago. This year alone, in addition to Makuhari Shintoshin and Wakayama, Aeon has opened in Toin in Mie, Tendo in Yamagata, and is about to open its Nagoya Chaya SC this month. It will also open malls at Tama Hiranomori in Tokyo, Katsurakawa in Kyoto and Kisaradzu in Chiba. These will be followed by another city mall at JR Asahikawa in Hokkaido, as well as Kitanakashiro in Okinawa opening in 2015, and Higashi Matsumoto in Nagano and Takasaki in Gunma in 2016.

While the upcoming SCs are a mix of suburban and city SCs, Aeon’s developer strategy looks set to shift almost entirely to city SCs from 2016 onwards, not least because viable out of town sites are fast disappearing along with local populations in many regions. In the future, Aeon Malls will focus more on development of inner city malls, smaller than that in Okayama, but still located on high footfall, easy access sites, similar to the one at JR Asahikawa. These will suit both working singles and seniors alike – the latter segment has been particularly vocal in its criticism of Makuhari Shintoshin as being too big to navigate.

Aeon’s partnership with JR East will be key to its city ambitions around Kanto where it will rapidly expand the number of SCs and Takasaki will be a test case and model for future development. The Takasaki Station mall will be rebuilt on what was previously a Vivre property that closed in March, replacing it with a new 45,000 sqm gross space, commuter and city orientated mall.

Aeon will also need to look carefully at its existing portfolio of more than 150 SCs. More than 100 are in areas where the population is expected to drop by 5% or more by 2025. Several dozen still suffer from a lack of customer targeting and are too close to competing properties also operated by Aeon, let alone being near to properties run by competitors. Aeon today has the skill set and retail assets necessary to differentiate this portfolio on a location by location basis, and given that it has passed a watershed in terms of market presence and customer awareness, investment in these poorer, ageing malls makes a lot of sense.