The top 100 shopping centres continue to grow. After a great year in FY2013, with sales rising an average of 4.2%, the leading SCs overcame the downturn in spending in 1H2014 to finish with another 3.9% jump in FY2014. The top selling SCs fared much better than the sector as a whole, which was flat at 0.1%. The downturn in spending on non-essential high ticket items after the consumption tax increase was offset by major investment in upgrading, expanding and converting SCs, spurred on by increasingly intense competition in key cities. The level of investment reflects the optimism and confidence among the leading developers that proactive management can overcome weak domestic demand, and force nearby competitors out of business, all the while reaping the tourist dividend that is lifting all boats – at least those in the right locations.
CHARTS IN THIS FOCUS:
Chart 1: Shopping Centre Market, 2001-2014
Chart 2: Sales and sales change for Top 100 and Total SCs, 2011-14
Chart 3: Top 30 SCs by Tenant Sales Growth, FY2014
Chart 4: Leading SCs by Sales Densities, FY2014
Chart 5: Top 100 SCs by Tenant Sales (excluding anchor tenants), FY2014
Fighting back and winning in 2014
In 2014, 55 new shopping centres (SCs) opened, with 15 closures – adding a net 1.1 million sqm of new space and 3,400 more stores. Although fewer than the 64 new SCs in 2013, this is markedly better than the trough of 2012 when just 35 opened (see Chart 1). Given the scaling back of development plans caused by severe labour shortages in the construction industry, 55 new SCs is positive, and reflects the optimism among the top developers.
Aeon dominates shopping centre market share, but doesn’t report SC sales separately – indeed, Aeon has stopped revealing any monthly sales data at all in the deepening financial crisis at the group. Surveying the shopping centre market without Aeon, which has 142 SCs in Japan, is increasingly aberrant, given its scope and power. By the end of 2015, it will have opened a further seven to eight new SCs with total new sales space of some 400,000 sqm. Overall, domestic SCs operated by its main developer subsidiary, Aeon Mall, produce operating income of around ¥230 billion per year. There was reportedly a dip in like for like sales of 2.6% in FY2014, and specialty tenant sales fell 1.8%, but this is to be expected from a business with such a wide variation in quality and locations across the group.
Aeonists (a term for those who not only shop but travel, house, furnish, invest, retire and even have a funeral through Aeon) are a growing phenomenon and indicative of just how deep Aeon is reaching into local communities. This is especially true in regional cities where the arrival of a large scale Aeon SC usually presages the closure of nearby shopping facilities, including department stores.
The new SCs opened in 2014 and so far this year mirror the shifts in the economy and migration. As JC’s Top 100 Consumer Markets report shows (see here for more details: http://www.japanconsuming.com/product/japans-top-100-consumer-markets-now-to-2025/), there are key cities in every prefecture – not just around Kanto – that are sucking in economic investment and migration at the expense of the rest, and getting more and better SCs. Developers are focusing almost entirely on these cities, and especially around stations.
This is forcing the closure of older SCs and department stores in the area, or forcing them to upgrade, creating hubs of high level SC operations with intense competition, but also with some amazingly high levels of traffic.
The effect of this is becoming more pronounced, with a shake out even in major cities like Yokohama and Osaka, and even among the biggest SCs in those cities. Identifying which cities these are, which areas within them will merit investment, and locating your store or brand distribution accordingly, remains key factors in long-term growth in the Japanese market.
A further trend in SCs last year was the reduction in space devoted to apparel. New and updated SCs in 2014-15 reflect a move towards more mixed merchandise stores, the expansion of accessories, home fashion and food, including “food select shops”, but above all, services and entertainment.
Key Highlights in 2014
FY2014 was an impressive year for many SC developers, particularly the top ranking SCs by sales, given the slow down in sales after April 2014. Overall sales for the top 100 were up more than for all 3,174 SCs as estimated by the JCSC – smaller regional malls with sales of less than ¥20 billion were particularly hard hit last year.
Sales growth was patchier last year compared to 2013, as upgraded and new SCs pulled traffic away from the rest. The exception was outlet malls, which continue to prosper across the board, partly through their habitual expansion programmes, but largely thanks to the tourist boom.
The top 100 SCs by sales saw average growth of 3.9%, down from 4.2% in 2013 but up from 2.2% in 2012 and slightly below the 4.4% achieved in 2011, but a stark contrast to the -1.5% and -2.1% in 2010 and 2009 respectively.
Combined sales for the top 100 rose to ¥3.013 trillion, 3.4% higher than 2013 (Chart 2), boosted by tourism at SCs like Narita, and expansion of several leading SCs like Karuizawa Prince Shopping Plaza and Mitsui Outlet Park Kisarazu which increased sales space by 25% or more.
64 of the top 100 SCs increased sales in 2014, down from 75 in 2013, but there were many more high growth SCs; 14 of the top 100 rose in double figures, compared to 10 in 2013 (see Chart 3). Just five SCs posted sales down more than 5%, fewer than in all but one of the previous five years.
By city within the top 100, Chiba led in average growth, with the 25 SCs in the top 100, averaging sales growth of 7.4%, down from 3.3% in 2013. Tokyo was up 1.7% compared to 4.4% in 2013. Osaka SCs were up 1.1%.
Narita Airport’s 15.5% growth, following on from 24.3% in 2013, was again thanks to the enormous rush of foreign visitors. In July last year the unveiling of Airport Mall in Terminal One, which includes some high ticket fashion and accessory tenants, also helped boost sales.
Narita extended its lead ahead of former top ranked Lazona Kawasaki, which only just managed growth, up 0.8%, after a surge of 7.8% in 2013 due to a major refurbishment. This was still a record result for the SC and testament to excellent management.
Lalaport Tokyo Bay also hit a new record, up 18.7% thanks to upgrades and expansion, now boasting 460 tenants across 102,000 sqm.
Takashimaya Tamagawa grew 11.7% from new tenants as well as the addition of the new Marronier Court extension.
Mitsubishi Estate-Simon’s Premium Outlet malls had another excellent year, partly from increased space but also from new tenants. Overall its eight malls in the top 100 averaged growth of 3.1%, down a fraction from 3.3% in 2013. The Gotemba mall jumped 17%.
Mitsui’s outlet malls had a more mixed year due to refurbishment and other changes, but on average jumped 8.2% thanks to expansion of the Kisarazu and Sapporo malls.
Station and fashion buildings had a solid year despite the fall in fashion consumption in the first few months after April 2014.
JR East showed a determination to keep its key station SCs fresh and was rewarded with a 1.5% average increase for the 14 SCs in the top 100. While there was a marked decline in fashion sales at lower ranked SCs, Lumine and other fashion buildings in central locations continued to pull in traffic. Even then, JR East was outmatched by JR Kyushu thanks to the popularity of its Amu Plaza chain of SCs.
The worst performing SC in 2013, apart from the Shisui outlet mall, was Tokyo Solamachi, Tobu’s mall at Sky Tree, down 10.4%. Tobu has been working to fix this, beginning an upgrade to the fashion floor area last summer, the first since opening in 2012. This means many more tenants selling souvenirs, Japanese accessories and brands suited to foreign tourists, who make up an increasingly large share of Sky Tree visitors.
Shibuya 109 posted the second worst performance, down 8.2%, and despite updating some 40% of the building last year. This is the sixth consecutive sales decline and means it is now out of the top 100 ranking by sales although it is still the sixth most efficient SC in terms of sales densities. 109’s problem continues to be the declining interest in the type of fashions typically represented by its tenants. TMD is now at last facing reality and has begun to bring in more mainstream, popular tenants such as Adidas Originals. Its big hope is new expansion overseas.
Investing to squeeze the maximum from each location
Overall, the top 100 SCs operated a total of 3.5 million sqm in sales space last year excluding anchor tenants, producing sales of ¥3.013 trillion. Accepting JCSC estimates for nationwide SC sales, the top 100 SCs accounted for 10.1% of the total, up 0.1 point on the year, but an increase of two 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 ¥86,630 per sqm per month, a slight decrease on 2013. This is about twice the national average.
Thanks to the wave of tourists, Narita topped the chart with densities of ¥311,756, up from ¥274,890, and the highest recorded in our survey over the last decade and nearly ¥70,000 per sqm per month more than the nearest rival.
The Diamond in Yokohama was second place again despite sales falling 8% due to refurbishment works, and still a very respectable ¥244,499 per sqm per month.
Lumine Est jumped from sixth to third place thanks to relentless changes to the tenant mix to keep the SC up to date and meet the needs of both locals and tourists.
Lumine Shinjuku completed the top five. It is testament to both the power of transport hubs, and ever more proactive efforts of JR firms to exploit this, that almost all the top 30 SCs by sales densities are located at railway stations or airports. The few that aren’t are outlet malls. 10 of the top 15 are operated by JR East alone.
Leading Developers: Mitsui and Mitsubishi fight it out
The leading firms in SC development (within the top 100 SCs) continue to be Mitsui Real Estate, JR East, and Mitsubishi Estate and JR East. Again Aeon would dominate if it reported tenant sales results per SC.
The JR firms, Mitsui and Mitsubishi alone account for 54 of the SCs in the top 100 and ¥1.7 trillion in tenant sales, i.e. 56% of the total, 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, followed by Tokyu and Hankyu is now fifth.
The impact of station development on consumption patterns and retailing is growing as developers increasingly focus their attention on new and upgraded SCs around stations in the key cities. 42 of the top 100 SCs are owned by railway businesses, and as mentioned above almost all the top malls by sales densities are also station-based. With important exceptions, Japanese retailing, especially lifestyle and convenience retailing, is increasingly shifting to station areas. As migration flows continue, this concentration will only increase.
Mitsui Real Estate
With Aeon not reporting, Mitsui is the largest developer within the top 100 SCs by sales as well as sales space. It extended its lead from JR East thanks to new malls, extensions and refurbishment. Sales rose more than ¥50 billion to ¥643 billion with average densities of ¥61,964. Sales densities are about half the level of JR East though, and reflect Mitsui’s more diverse spread of locations and formats in suburbs and out of town. Mitsui continues to add new malls – more Lalaports have or are being opened this year in Tachikawa, Fujimi (Saitama), and Ebina, and Japan’s biggest SC ever at Expocity in Osaka. Going forward, as well as its large scale SCs, Mitsui will develop more small scale buildings in the capital, including in Ginza, Shibuya and Omotesando. It will invest a total of ¥1.5 trillion in new builds between 2015-2018, including office and residential developments. It has also worked hard on upgrading key malls, especially its big four: Lazona, Tokyo Bay, Yokohama, and Toyosu.
The JR firms alone had sales of ¥617 billion within the top 100, up slightly from ¥615 billion the year before, operating 442,000 sqm of sales space. Sales densities dropped slightly to an average of ¥122,780 per sqm per month – the JR companies are way ahead of their peers in efficiency thanks to locations, and are improving skills in tenant selection and marketing.
JR East had average densities of a huge ¥141,131 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. It is increasingly favoured by retailers, showing greater levels of innovation and flexibility compared to a decade ago.
During 2014, JR East’s shopping and office division saw revenue rise 1.8% to ¥266.5 billion, producing an operating profit of ¥72.3 billion. During the year, JR East opened several new SCs include CIAL Sakuragicho in Kanagawa, Nonowa Muasashi Koganei, and Midori Nagano.
Going forward, the Shinjuku New South Exit Building is scheduled for completion in Spring 2016 (see Page 8), and the Sendai Station East Exit Development will complete in 2016 too. JR East began construction of the Atami Station Building this year, slated to open in 2017 and the JR Chiba Station South Exit Building is expected in 2018 with 57,000 sqm of sales space. Phase 1 of the Shibuya Station Area Development Plan, a joint project with Tokyu Corp and Tokyo Metro will open in 2020 with 70,000 sqm of sales space. For FY2018, JR expects sales of ¥425 billion.
JR West actually saw revenue decline in 2014, by 8.3%, to ¥220 billion, but this was largely due to the conversion of the Isetan-Mitsukoshi store into Lucua 1100, opened in April, which meant closure of the building for seven months – on a like for like basis, revenue was positive. During the year, JR West opened Eki Marche, a 70 tenant SC within Shin-Osaka station, as well as turning parts of Toyama and Kanazawa stations into SCs to take advantage of the traffic from the new bullet train from Tokyo to Kanazawa. JR West is playing catch up to JR East in converting stations into appealing shopping centres but is currently rebuilding at Shin-Osaka, Hiroshima and doing further work at Kanazawa.
JR Tokai posted higher revenue, up 5.9% to ¥233.8 billion. Revenue was boosted by the perennial growth at JR Takashimaya Nagoya, which also saw investment in upgraded space. It is creating new retail space too, especially along its commuter routes to prosperous commuter towns such as Anjo.
Mitsubishi Estate, including its outlet subsidiary, saw sales within the top 100 jump increase by just ¥2 billion to ¥417 billion. A huge spike in sales at Gotemba and Minato Mirai of 17% each was offset by a fall in sales at Shisui Outlet Mall. Strong performances at other outlet malls all helped offset weaker sales at key Marunouchi SCs, meaning it fell behind JR East which took back second place in developer rankings. However, sales densities rose well, up by 5% to ¥78,221. Mitsubishi has several city centre projects on the go, including Nagoya, and continues to rebuild chunks of Marunouchi and Nihonbashi. It has been talking about rolling out the Mark IS brand as a rival to Mitsui’s Lalaport, but with no new SCs announced yet. The two firms compete head to head in outlet malls, owning almost the entire market between them.
future SC development
Although there is optimism at the top of the industry, the tightness in labour markets has had a significant impact on developers’ capacity to build. In the year to the end of October 2015 41 new SCs were built. There should be another 10 SCs or so coming online before the end of the year, meaning a drop of four or five over 2014.
Some of these SCs are huge and almost all of the largest are from Mitsui and Aeon, including Expocity (90,000 sqm), Lalaport Tachikawa (60,000 sqm), and new Aeon SCs in Osaka and Aichi, both more than 70,000 sqm. Other notable SCs opened so far in 2015 include Lalaport Fujimi and Aeon’s 80,000 sqm mall in Okinawa.
Labour shortages and weak domestic consumption aside, investment continues 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 rapidly ageing population: 30% of the population over 65 by 2025
Increased demand for entertainment, leisure and services at SCs 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. In particular, major developers are looking to add more entertainment and leisure services at larger properties.
What the growth in new SCs combined with concentration of investment in fewer cities and areas means is much greater competition within each district. There are now some hot spots where the battle between developers is increasingly fierce. These include the Chiba Bay area, Shonan in Kanagawa, and Musashi Kosugi down to Kawasaki. In Kansai, Umeda and Abeno/Tennoji in Osaka, and Nishinomiya in Hyogo, and further south, Fukuoka. In all these cases, Aeon and Mitsui are driving the competition.
There are some new, fast developing suburban centres too, where migrants are swelling the populations and developers are all too happy to build retail and services for them. In Kanagawa, Shinyurigaoka and Musashi Kosugi are increasingly popular places to live, and fast emerging as major shopping and entertainment hubs.
As well as this concentration of development, other key responses to market conditions are:
SCs are evolving into genuine entertainment centres offering a day or night out, partly as a way to counter the threat from e-commerce, but also because of consumer interest in services and entertainment over merchandise. All SCs are aiming to provide a combined leisure and shopping experience that is not possible through an online store.
The better SCs have long included event spaces and cinemas, or located next to stadiums and concert halls in order to boost traffic on a regular basis. The latest malls do the same but go a step further, adding major leisure installations within the mall grounds, of which Mitsui’s upcoming Expocity is the best example, with its English language learning village, museums and Japan’s biggest ferris wheel.
This means more diversity of tenants away from the traditional dominance of fashion. Fashion remains fundamental to most SCs, but there is no denying the shift to diversify.
Developers are also giving more tenant space to services such as beauty salons, massage clinics, and a plethora of educational tenants ranging from cooking classes to kids’ themed play areas like Kidzania.
Tie ups with brands on events, which cost developers nothing, are ubiquitous now. Every month the most proactive malls will have as many as two to three events per weekend, ranging from a Toyota branded event on the future of automative green technology, a Dad with Kids event organised by Akachan Honpo, a Saison card lottery, or a Halloween evening tied to key tenants selling merchandise.
Aeon, Mitsubishi and Mitsui are all looking at locations that are easy to access without a car, given migration flows to big cities with public transport links.
There are also more efforts to attract senior shoppers.
Retailers are cooperating to meet developer demands. A big change is in how the tenants themselves are working to create more excitement in-store. There is now a real effort to create retail entertainment and theatre in even the smallest space.
Tenants are encouraged to dream up events to pull in traffic, ranging from flower arranging classes in the flower shop, making your own hand stamps in the stationery store, and learning how to make pasta in the Italian restaurant.
Retail groups are coming up with new formats that mix merchandise across lifestyle categories of home, fashion, travel, and food. Many fashion retailers too have created mixed merchandise stores, and even entirely non-fashion formats such as Urban Research’s experiments with food select shops. Nevertheless, developers remain committed to fashion.
Department stores are getting involved too, becoming tenants at SCs through new specialty chains in cosmetics, accessories, senior select shops like MI Plaza, and food emporiums. Takashimaya’s Style Maison is just the latest example (see Page 3).
Developers are wooing new international retailers given their power to pull in traffic, and also brands, including sports brands like Adidas and The North Face.
Temples of hope and entertainment
Shopping centre retailing is clearly facing up to some real challenges with gusto. The problems of weak consumption at home, labour shortages and rising construction costs, alongside withering regional areas, are problems that will not disappear soon.
At the same time, the tourist boom and the opportunities in key regional cities where there is inbound migration, are quickly being exploited by developers and tenants alike.
As a result, even though there is pressure on all but the most affluent households, the share of spending that goes to SCs is rising incrementally each year at the expense of local shopping streets. 20% of retail sales come from SCs, and this is set to grow, especially given the focus on building more conveniently located city SCs.
Station development continues at a fast pace and this includes homes and offices too. Odakyu for example will redevelop 35,000 sqm of land for completion next to Ebina Station in Kanagawa in 2025 creating an entirely new town of high rises. JR East is spending more than ¥50 billon on new centres at Machida and Yokohama stations, due in 2018. Back in town, Mitsubishi will build a 400 metre high tower at Tokyo Station, due in 2027, the tallest commercial space in Japan.
E-commerce is a real threat but Japanese love to shop. Shopping centres are and will remain a principle leisure destination for many consumers, from seniors wanting to get out during the day to singles after work, and families on weekends.
Japanese love malls in much the same way they do Disney, seeing them as a safe, glittering world apart from the daily grind, offering hope and a chance to indulge that attracts many, families and singles alike.
Indeed rather than making them obsolete, e-commerce is simply helping redefine the way SCs are perceived, and encouraging the best developers to make them even more relevant. Developers and consumers alike are coming round to the view that malls should not just be conduits for merchandise transactions, but temples of confectioned entertainment, places Japanese can go to let go of the messy reality outside, and the noisier and busier they are, the more people feel a part of something special.
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