Shopping centres had a great year in FY2013 thanks to higher spending on fashions, food and lifestyle goods. The top selling SCs fared much better than the sector as a whole. The increase in spending before the tax hike on non-essential high ticket items such as fashion and the sharp rise in tourism helped lift station and other SCs at transport hubs. As a result JR-operated SCs made up nine of the top 15 SCs by sales densities. Aeon continues to dominate overall, and to such an extent that some consumers are now being dubbed Aeonists to describe the breadth of transactions with parts of the Aeon empire in work, rest, play, and even death.
CHART 1: Shopping Centre Development 2001-2013
CHART 2: High Growth SCs among top 100 SCs by Sales, FY2013
CHART 3: Top 100 SCs by sales, FY2013
CHART 4: Leading SCs by sales densitiies, FY2013
Much higher sales in 2013, but are you an Aeonist?
Between 2008-12 the rate of new shopping centre (SC) development fell sharply, but since 2012 sales have been improving. Just 35 new SCs opened in 2012, the smallest increase in more than 15 years, but all this changed in 2013 when 64 SCs were brought online (see Chart 1). Aeon led this both in SC numbers and size.
Aeon dominates shopping centre market share, but doesn’t report SC sales separately. Surveying the shopping centre market without Aeon is increasingly aberrant, given its scope and power. Indicative of this is the latest consumer segment dreamed up by the media: Aeonists. So called because these consumers transact almost their whole lives through some part of the Aeon empire, spending entire days encapsulated within a mall, complete with kids growing increasingly manic as the diet of fizz, sugar, muzak, LED lighting, and endless arrays of consumer goods send them spiralling.
Aeon has driven deep within family life in other ways too. It will now educate your children at its growing number of creches, fund the purchase of a house and insure it through its financial arm, and then of course fill it forever after through Aeon stores and specialty chains. It will take care of you in retirement through its investment plans and help you spend it at its malls designed specifically for active seniors. Finally when this Aeon life has become too much, it will also cremate you and package up your remains in an urn – the latter one of the few products that mercifully still doesn’t carry the Aeon brand.
Aeon is everywhere. SC development including Aeon is following the economy and population migration. As JC’s new Top 100 Consumer Markets report shows, the most populated cites in every prefecture – not just around Kanto – are the centre of economic investment and migration, and getting ever more glitzy SCs as a result, while more outlying towns are giving over to rust. Retailers and brands are working hard to find out just which cities and towns are the winners and focusing their investment accordingly.
Key Highlights in 2013
FY2013 was a really buoyant year for many SCs, particularly the top ranking SCs by sales. Overall sales for the top 100 were up more than for all 3,134 SCs as estimated by the JCSC. Tokyo and Yokohama SCs did particularly well compared to 2012 when the benefits were spread more widely – as with department stores, and indeed retailing as a whole, there’s a widening gap in performance between the big cities and the rest of the country. The only exception to this is outlet malls, which continue to prosper, partly through ongoing investment in expansion, but also from the nascent tourist economy, whose ongoing growth should provide a fillip to the format.
The top 100 SCs by sales saw average growth of 4.2%, up from 2.2% in 2012, slightly below the 4.4% achieved in 2011, but much better than the -1.5% and -2.1% in the previous two years before that.
Sales for the top 100 rose to ¥2.913 trillion, boosted by the addition of several new, large scale malls like Tokyo Solamachi and Grandfront Osaka, already the 8th and 12th ranked malls by sales.
75 of the top 100 SCs increased sales in 2013, a remarkable record. 10 of the top 100 rose in double figures, compared to seven in 2012, but 11 in 2011 (see Chart 2). Eight SCs posted sales down more than 5% compared to four in 2012, 10 in 2011, 29 in 2010 and 38 the year before, but this was almost all because of reconstruction.
By city, Tokyo led in average growth, with the 25 Tokyo SCs in the top 100, averaging 4.4%. Second was Chiba, up 3%, followed by Yokohama up 2%. Osaka managed just 0.02%, let down HEP Five, Tennoji Mio and Lucua.
Narita Airport’s stellar 24.3% growth was largely thanks to the enormous rush of foreign visitors, with foreign traffic at Narita rising a staggering 22.1% in 2013. In July this year the unveiling of a sparkling and clever new shopping zone in Terminal One called Airport Mall, which includes some high ticket fashion and accessory tenants, combined with yet another record year of tourist growth should help the airport post another great year.
Narita returned to the top spot overturning Lazona Kawasaki, even though the latter grew 7.8%. Lazona introduced a number of higher end tenants to the mall starting from 2012, which helped lift sales densities as well as attract new types of customer.
Mitsubishi Estate-Simon’s Premium Outlet malls had another good year, partly from increased space but also from new tenants. Overall its eight malls in the top 100 averaged growth of 3.3%. Mitsui’s outlet malls had a more mixed year due to refurbishment and other changes, although its expansion of the Shiga Ryuo SC from 27,000 sqm to 37,000 sqm helped boost sales there by 32%.
Station and fashion buildings had a solid year thanks to pre-tax hike spending. JR East showed a determination to keep its key station SCs fresh and was rewarded. Lumine Ikebukuro was, again, the fastest growing station SC in 2013, rising just under 9% on the back of popular new tenants and dining floors. Other JR East properties also did well, up 7.7% on average.
The worst performing SC in 2013, apart from two outlet malls, was once again Shibuya 109, down 9.1%. This is the fifth consecutive sales decline. 109’s problem is the declining interest in the type of fashions represented by its tenants, and cheaper and better chains for young women are now abundant. TMD, the SC’s developer and manager, may have too much pride in its past achievements and be too jealous of diluting the 109 branding to hand space to large retail chains – it has expanded the iconic 109 brand to other cities after all and will be launching overseas shortly. During the last six months it has also refurbished 40% of the building, installing six new tenants and updated seven others.
Wringing ever more from the same space
Overall, the top 100 SCs operated a total of 3.4 million sqm in sales space last year excluding anchor tenants, producing sales of ¥2.91 trillion. Accepting JCSC estimates for nationwide SC sales, the top 100 SCs accounted for 10% of total SC sales, up 0.3 points on the year, but an increase of 2 points since 2010. In terms of space their share is just 7%, reflecting the higher sales densities at the leading properties.
Average sales densities among the top 100 were ¥87,859 per sqm per month, a slight increase on 2012.
Thanks to the wave of tourists, Narita topped the chart with densities of ¥274,890, the highest recorded in our survey over the last decade.
The Diamond in Yokohama fell to second place, but still with very respectable densities of ¥258,377 per sqm per month.
Another Yokohama SC, Porta, took third place, although with much lower sales densities of ¥207,468.
Lumine Shinjuku completed the top five although its Lumine Est neighbour is catching up fast, just behind with densities a mere ¥300 lower. It is testament to both the power of station locations and the efforts of the JR firms to exploit this that nine of the top 15 SCs by sales densities are JR operated.
Leading Developers: Mitsui and Mitsubishi fight it out
The leading firms in SC development (within the top 100 SCs) continue to be the JR companies led by Mitsui Real Estate, Mitsubishi Estate and JR East. Again Aeon would dominate if it reported results.
The JR firms, Mitsui and Mitsubishi alone account for 55 of the SCs in the top 100 and ¥1.6 trillion in sales, i.e. 56% of sales, a huge market share. Parco, Hankyu, Tokyu and Toshin Kaihatsu (Takashimaya) form the second tier of developers, with Tokyu particularly active in certain parts of the country, and Parco once again picking up pace. Parco is the fourth largest, but Hankyu is now fifth ahead of Tokyu thanks to its new Grandfront SC in Osaka which added ¥43 billion in sales last year.
Mitsui Real Estate
With Aeon not reporting, Mitsui is now the largest developer within the top 100 SCs by sales as well as sales space, taking over from JR East thanks to new malls, extensions and refurbishment. Sales rose to ¥584 billion with average densities of ¥62,820, about half the level of JR firms and reflecting Mitsui’s more diverse spread of locations and formats in suburbs and out of town. Mitsui continues to add new malls – more Lalaports are due in Tachikawa, Fujimi (Saitama), Osaka and Ebina (Kanagawa) next year – but it has also worked hard on upgrading key malls, especially its big four: Lazona, Tokyo Bay, Yokohama, and Toyosu. Overall, Mitsui operates some 110 SCs in Japan with floor space of close to 3 million sqm.
Mitsubishi Estate, including its outlet subsidiary, saw sales within the top 100 jump from ¥357 billion to ¥415 billion thanks to the inclusion of the new Mark IS SC in Yokohama which added ¥20 billion and Shisui Outlet Mall, which produced ¥23 billion. Strong performances at other outlet malls all helped make Mitsubishi the second ranked developer in the top 100, ahead of JR East. Sales densities also rose slightly by 1% to ¥74,629 thanks to new SCs and other improvements. Mitsubishi has several city centre projects on the go, including Nagoya, and continues to rebuild chunks of Marunouchi. Mitsubishi is planning to roll out the Mark IS brand to rival Lalaport too. The two firms also compete head on in outlet malls, owning most of the market between them.
The JR firms alone had sales of ¥609 billion within the top 100, up from ¥598 billion the year before, and had 444,000 sqm of sales space. Sales densities hit an average of ¥123,700 per sqm per month – the JR companies are well ahead in efficiency thanks to locations, and are improving skills in tenant selection and marketing. JR East had average densities of just under ¥142,948 per sqm per month and, although no longer the biggest developer by sales in the top 100, this is only because it is largely limited to making the best of its station locations rather than building elsewhere – although the success of Lumine Yurakucho seems to be encouraging it to look for similar opportunities going forward.
New and future SCs
The buoyancy in some parts of the sector is encouraging further investment with 51 SCs opened in 2014 as of early December, easily surpassing the low level of 2012 and matching the levels of 2013.
Some of these SCs are huge and almost all of the largest are from Aeon, including Aeon Okayama (92,000 sqm, opening December 5), Aeon Kisarazu (84,000 sqm, opened October), Aeon Kyoto Katsuragawa (77,000 sqm, opened October), Aeon Nagoya (75,000 sqm, opened June), and Aeon Wakayama (70,000 sqm, opened March).
Other notable SCs, although much smaller in comparison, were Grand Tree Musashi Kosugi with 37,000 sqm which opened last month to long queues, and Mitsui Shopping Park Lalaport Izumi in October with 55,000 sqm.
Many more SCs are planned for 2015. Mitsui alone plans nine at home and overseas. Aeon isn’t letting up either. In October it requested licenses to break ground on several new SCs next year including another regional giant SC, this time in Toyama, which will start construction in June next year and another in Sakai, Osaka due in 2016.
There is clearly plenty of investment, but this is coming into a market with the following significant characteristics:
A shrinking population and migration from smaller towns and cities to regional and capital hubs
Extremely rapid ageing population: 30% of the population over 65 by 2025
Increased demand for entertainment and services over product alone
Competition from e-commerce.
As described last year, developers are responding with more imaginative tenant selections, including more services to differentiate from online stores, as well as more links between online and offline transactions.
What the growth in new SCs combined with concentration of investment in fewer cities and areas means is much greater competition within each district. Indeed there are now some significant hot spots around the country where the battle between developers is increasingly fierce. These include the Chiba Bay area, Shonan in Kanagawa, and Muasashi Kosugi down to Kawasaki. In Kansai, Umeda and Abeno/Tennoji in Osaka, and Nishinomiya in Hyogo. In all cases except Musashi Kosugi and Osaka, Aeon is driving competition, and is in danger of further competing with itself as it does already in Chiba, Gifu, Shizuoka and parts of Kansai and Kyushu.
In Osaka, Umeda has already seen a spate of development, principally from JR West and Hankyu but they haven’t finished yet. JR West will revamp Osaka Station City in the next few months, creating a much larger Lucua SC from the remains of Isetan-Mitsukoshi, putting pressure on Grandfront just a year after opening (see Page 3). In Abeno/Tennoji, a similar problem is emerging although in this case it is the new Abeno Harukas centre that is proving unable to compete with upgraded SCs nearby thanks to poor execution.
In Kanagawa, Musashi Kosugi is fast emerging as a major shopping and entertainment hub as well as an increasingly popular place to live and is being dubbed the next Futako Tamagawa. Two new malls have opened recently, Seven & I’s Grand Tree and Mitsui’s Lala Terrace, but more are planned to exploit the growth in new residents and the fact that, even now, Musashi Kosugi has the highest apparel sales per capita in the country according to JC report, Japan’s Top 100 Markets.
As well as this concentration of development, other key responses to market conditions are:
Efforts to attract more senior shoppers with senior orientated SCs or parts of SCs, as well as same and next day delivery services within local catchments.
Aeon, Mitsubishi and Mitsui are all looking at locations that are easy to access without a car, or with short journeys for seniors who increasingly prefer to travel by train or bus.
SCs are evolving into entertainment centres as a way to counter the threat from e-commerce, offering a leisure experience that is not possible through a screen.
Tenants are cooperating. Many fashion retailers have created mixed merchandise stores selling fashion alongside home and lifestyle, and often including a cafe. Onward’s new chain Share Park in Grand Tree Musashi is a case in point. Nevertheless, developers remain committed to product and above all fashion. In a recent survey of leading developers by Senken concerning future plans, 23.5% said they would increase the ratio of apparel tenants. The second product category where they were keen to see more tenants was home interiors at 16%. The third was cafes and restaurants, followed by shoes, bags & accessories.
As well as specialty retailers, department stores are now becoming tenants at SCs through their new specialty chains.
Developers are wooing new international chains. International retailers are increasingly foregoing a stand alone location to launch new chains into Japan, and instead opting for top SCs instead.
New launches aside, most developers show little expectation of increasing or decreasing rents/minimum sales in the next year. Surveys of developers suggest more than 80% plan to keep rents at 2013-14 levels.
Shopping centres: a national institution
Shopping centre retailing is clearly on a roll again. It weathered the crash of 2008-9 and the collapse in development that followed it, and has been supported by growth in spending by consumers that has lasted at least until now. Even though there is pressure on all but the most affluent households due to price increases and stagnant wages – election saving bonuses aside – the share of spending that goes to SCs is rising steadily each year at the expense of local shopping streets. This will continue, especially given the focus on building more conveniently located city SCs.
While the threat from e-commerce is real, shopping centres remain a principle leisure destination, from seniors wanted to get out during the day to singles after work, and families on weekends. E-commerce is only encouraging developers and consumers alike to come to view malls no longer as just shopping centres, but more as leisure domains, where, like Disneyland, Japanese let go of the messy reality outside, submerging themselves in a world of apparent plenty, safety, community and fun, and the more controlled and predictable the better.
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