The Canadian shopping centre: innovating to evolve amid flux and disruption

Properties across the country are redefining their purpose and function in order to adapt and thrive within an ever-shifting landscape // By Sean Tarry

Theretail industry is not one that is unfamiliar with change. In fact, change happens daily, and seemingly, at times, in the blink of an eye. It’s evident in, and most commonly caused by, shifts in consumer behaviour, trends that take the market by storm, economic factors and influences, global disruptions, and advances in digital technology. However, it’s not often that all of these pressures simultaneously bear down on the industry as they have over the course of the past couple of years or so. It’s transformed the change that retailers are accustomed to into full-fledged upheaval in some parts, sending many scrambling in a number of different directions in efforts to pivot, rejig and reinvent their brands and offerings. It’s a confluence of disruptive forces that have led many within the industry to rightfully assess their standing within today’s helter-skelter environment. And, for shopping centres located in cities and communities across the country, says Paul Lessner, Senior Vice President, National Shopping Centre Leasing at JLL, it’s resulting in a need to redefine their purpose and utility.

“There’s no question that the industry is currently going through a state of flux and change,” he recognizes. “During the pandemic, there was a lot of discussion around the mall and its ability to survive the turbulence. It’s the same conversation that had started years earlier with the advent of ecommerce. It was all about the death of bricks-and-mortar and the shopping centre. I was never in that camp of thinking. I believe that bricks-and-mortar and the shopping centre is here to stay. But there are clearly adjustments that need to be made. The disruption that’s occurred over the last few years has really just accelerated trends that had already begun within the industry. And, although traffic may not be back to 100 per cent, malls throughout 2022, generally speaking, flourished. People are visiting these properties with a purpose, leading to increased conversion rates. And, there seems to be a consensus among brands of the critical importance of physical storefronts to their success in most markets. The question today is: what’s my purpose? And, from the perspective of the shopping centre, playing the traditional role of moving goods just isn’t going to cut it anymore.”

More than a shopping centre

It’s a sentiment that seems to be gaining some momentum across the country with some of Canada’s major property development and landlord players beginning to ramp up their investment in the creation of entities that are more than mere shopping centres. It’s prompting the development of a host of concepts and approaches all meant to attract the consumer and draw them into the space. And, according to Andy Clydesdale, Executive Vice President, Global Retail, QuadReal Property Group, the function of today’s shopping centre is not only changing, but serving to satisfy more aspects of an individual’s life than ever before.

“One word to sum up the current state of the Canadian shopping centre? Evolving. Given that retail is always and ever-changing, it is hardly surprising that the function and utility of shopping centres must change along with it. It goes without saying that the shopping centre has moved well beyond being simply a place for transactions. These have become places to live and work as well as critical points for community connection. Additionally, there is way more emphasis today on wellness, service and entertainment and experience uses. The need to really stick to your knitting is also very apparent right now as the well-located, well thought-out shopping centres with a very clear modus operandi are the centres that are thriving. In other words, the strong really are getting stronger.”

Contributing to consumers’ lives

QuadReal, which manages and operates 13 different shopping centres across the country, including the impressive Oakridge Centre in Vancouver, Toronto’s Bayview Village, and Marche Central in Montreal, has gone a long way to help set a standard within the industry by way of its approach to property development and the lens through which it views the retail experience. In fact, Clydesdale recognizes the somewhat unique thinking that drives he and his team, particularly around building the right kind of tenant mix for the centres QuadReal manages.

“We’re very much about curating something special and true to the brand,” he asserts. “There’s enough same-same in our industry so we aren’t looking to replicate the retail offering of the mall down the street. Of course, that requires an understanding of who you are from a brand perspective, an acceptance of the fact that you can’t be everything to everyone, and a refusal to compromise. At the end of the day, we’re looking for ‘kindred spirits’ - amazing retailers; synergies with our brand and our existing tenants; the missing pieces of the merchandising puzzle; and tenants who are going to contribute to the overall ‘day in the life’ for our customer.”

Differentiated tenant mix

Curating that special offering through a thoughtful mix of tenants that differentiate a shopping centre from all of its competitors is becoming increasingly important to ensuring their shortand long-term success, says Lisa Hutcheson, Managing Partner at J.C. Williams Group. In fact, she says that centres that understand this need will be those that rise to the top within such a competitive and evolving market.

“The Canadian shopping centre is, at the moment, in a bit of a state of transition,” she says. “And, it’s a transition that’s needed. The pandemic certainly shook things up a little bit, changing the utility of the shopping centre to serve more as micro-fulfillment centres and convenience locations. But, today, as we start to move away from the pandemic, every property is showing them- selves as incredibly unique and must be looked at that way by developers and landlords. The shopping centre was originally a place for community. But, over time, it became a bit commoditized and very much homogenized. Today, however, landlords are starting to curate their offering a little more, understanding the need to create a compelling community focus for their specific demographic.”

Dropping anchor?

Hutcheson goes on to explain that, in addition to the need to shake things up a little bit from a merchandising and offering perspective, Nordstrom’s exodus from Canada is set to really shake things up across the country, leaving most shopping centre management teams with no choice but to get creative to fill the resulting void.

“Recent developments involving Nordstrom are really going to change the way shopping centre landlords look at the mix of brands within their locations,” she says. “Because of the size of the spaces that Nordstrom occupied, there’s no one-size-fits-all solution to filling these vacancies. Originally, the brand presented most shopping centres with an easy plug-and-play. However, its departure has really called the idea of the shopping centre anchor store into question. In fact, this may spell the end of the traditional department store anchor. If it wasn’t in play prior to Nordstrom’s exit, it certainly is now. Going forward, we’re likely to see themed nodes or clusters, involving some form of entertainment or food offering, serving to fill the vacuum and taking over the role of anchor in order to draw visitors and traffic to shopping centres.”

The speed of change

Michael L. Kehoe, the Broker of Record at Fairfield Commercial Real Estate in Calgary, Alberta, also recognizes the need for shopping centres to differentiate themselves through a unique offering that can’t be found in too many other places. However, the commercial real estate veteran, who’s been working in and around retail for the better part of a half century, says that the speed at which the industry moves, particularly its current acceleration, poses the biggest challenge in achieving the goal of the right tenant mix.

“Over my 47 years in the industry, I can say that the pace of change at this time is unprecedented,” he states. “The ability of today’s sophisticated shopping centre owners to quickly cycle space to new and fresh retail and food service concepts is impressive. This ensures that shopping centers remain relevant to the shopper with fresh offerings and experiences that are available for consumers who have many shopping and dining options.”

Having said this, however, he goes on to explain that, in his estimation, shopping centres across the country are currently in a “vulnerable” state during a time in which the most innovative, and financially sound, centres will win out.

“Shopping centre retailing is a Darwinian struggle at the best of times, and it’s no longer a matter of survival of the fittest,” he says. “It’s survival of the innovative, the quick to adapt to change and new trends, and the survival of the financially stable. Rising operational costs and property taxes make many shopping centers unaffordable for new entrepreneurial retail ventures and unique chef-driven food service concepts. In a troubled world, shopping centers need to work hard to be that safe place for consumers to visit, especially for the coveted female shopper and their families.”

Community gathering places

To do this, Kehoe explains, shopping centres must reaffirm their purpose and revisit the basic concept of retail, reigniting them as the community gathering places that they once were and the cultural beacons of the areas that they serve.

“The operative word is ‘community’ and how these properties can serve their primary trade areas and beyond to create an experience for the shopper on every visit,” he says. “A primary trade area focus is needed that will ensure that each shopping centre has a local identity with the best-in-class local retailers and eateries along with a mix of national and international brands where possible. Does your local shopping centre say “Calgary, Moncton or Burnaby” when you think of it? If not, they are undifferentiated and could very well be in trouble. With my age and experience, I recall fondly the days of community events in mall common areas, fashion show runways and sidewalk sales. The bygone era of the mall merchant association where the landlord and tenants met, and talked to each other, on a regular basis to promote and advertise the shopping centre. We need to look beyond the landlord’s proforma on rental expectations and focus on affordable rents for retailers and food service entrepreneurs.”

Rediscovered purpose

It’s a concept that’s showing up, and being blown up in the very best of ways by some developers across the country, in mixed or alternative use properties where there is something for everyone. It’s also a concept that JLL’s Lessner lauds as, at least, part of the answer in properly addressing the needs of today’s consumer and elevating the Canadian shopping centre to once again become conduits of communication, engagement and excitement and activity for patrons that frequent the spaces.

“The Canadian shopping centre is ultimately going back to its roots as a community gathering place. Back when the first shopping centre was introduced, it wasn’t just a mall where people consumed goods. It contained food and beverage purveyors, entertainment, medical and a number of other different offerings and uses. And that’s where today’s centre is going, rediscovering its purpose as a hub within the communities that they serve. But this is a concept and philosophy that’s going to require perpetual reinvestment from the landlord. And, it’s also going to require greater collaboration between landlords and their retail tenants. It’s a partnership. If the right tenant mix has been curated within a mall, and the right kind of events and attractions are being presented, consumers will want to shop at the mall, resulting in a flourishing retail community and the growth of landlord asset valuation.”