Conference 2010 Milan, 23-26 June

1. European Real Estate Society Conference 2010 Milan, 23-26 June Managing the shopping centre formula: saturation or new development? Marina Bravi: Associate Professor at Politecnico di Torino Antonio Talarico: Fellowship Researcher at Politecnico di Torino and SiTI (Politecnico di Torino – Dicas - Housing and City)

2. Two years of crisis • Effects of the economic and financial crisis starting from the end of 2008 and affecting Western economies: • Weakness of Shopping centres sector • Consumer decision • Consumption fall • unemployment ; • declines in the Gross Domestic Product; • uncertainty associated with the crisis duration • drop profitability - mainly due to a decline in rent and royalties • delays in opening new structures, with concellation of projects already planned • reducing overall spending in the short term; • postponing purchases related to the durable goods

3. The Shopping Centre Formula • The marketing and financial success of a shopping centre is dependent on many factors: • The tenant mix; • The quality of location and accessibility; • The catchments size; • The car – parking provision; • The design and the environment. • Shopping Centre Formula • The success of individual tenants and the success of a centre as a whole are interdependent and enhanced by the cumulative synergy generated by the mix of stores. • The combination of all these factors is decisive on whether or not a developer/landlord will find a successful formula from the standpoint of the potential tenants and consumers.

4. The development of shopping centres in Italy between 1999 to 2009 +76% 171 302 +98% 150 243 +62% 94 187 58 153 +163% 885 473 +87% 14% 34% 28% 21% 37% 26% 42% 47% 26% 30%

5. The development of shopping centres in Italy between 1999 to 2009 +92% +106% 2,208,133 4,260,673 26 % 34% 29 % 30% 1,768,253 3,040,330 1,041,983 2,153,307 +71% 775,997 2,822,727 88 % 53 % +263% 5,794,366 12,277,037 +111% 12,913 14,108 11,788 12,512 11,085 11,515 +37% 13,379 18,849 +13% 12,250 13,872

6. A further look to the North Western Italy • The new structures development is also influenced by a higher level of competition, especially in those areas already characterized by high density. • The recent decline in sales would not be, in fact assignable merely to the economic crisis, but it could indicate the necessary way towards a new phase of development and management. • Question: are we in a scenario of spatial retail demand saturation – in front of the alternative sale channels – or will it be possible to push up the shopping centre formula in the future?

7. A further look to the North Western Italy +51% Total North Western 71 107 302 0 140 178 178 +37% 1,202,331 111,090 233,263 2,825,079

8. A further look to the North Western Italy 4,734 4,304 11,839

9. A further look to the North Western Italy 133.9 271.2 69.5 144.4 171.1 290 290 2.4 1.1 1.8

10. Managing the shopping centre formula: saturation or new development? • Potential catchments area Competition today Patronage Use of the time Multi-channel level sales Tenant – mix Parking Accessibility Design and environment Catchment area Profitability? ? • Shopping Centres formula • sustainability, in geographical areas considered fully developed

11. Can the evaluation models help the retail patronage? • Analysis related to the review of the formula that has characterised the development of shopping centres must deal today with the variables that characterise the local context in which the investment decisions are taken. Choice models based on stated preferences are focused on the impact of a predefined set of attraction variables on the consumer store choice behaviour. Advantage Disadvantage Future scenarios Store characteristics can be appreciate in terms of : • models born in industrial marketing and transport analysis • models not specifically designed to represent the spatial choices. • Utility; • purchase probability; • marginal price;

12. The shopping behaviour evaluation through the analysis of stated preferences • Within a survey conducted in 2005 for educational purposes and having as its goal the analysis of shopping centres in the metropolitan area of Turin (North Western Italy), was selected, through an adaptive approach (Adaptive Conjoint Analysis), a set of relevant characteristics for the consumer: • Total GLA • Car park • Main stores • Facilities • Mall • Design and Plan • Floors • Free spaces • Attributes

13. The shopping behaviour evaluation through the analysis of stated preferences • Elaboration by standardized procedure led to the following conclusions: • strong interdependence – substitution effect – between the centres, despite differences in the characteristics of the single structure; • a certain preference for a careful design which, together with the importance attributed to a small and not dispersed structure, refers to an optimization of the shopping experience and perhaps minimization of timing; • confirmation of the role of refreshment services as complementary supply of the merchandising mix; • confirmation of the importance of other activities and facilities; • strong expectation of entertaining events, free spaces and extended opening hours (time boundary).

14. Conclusions • The considerations developed so far want to solicit a double reflection: • on the various aspects of the complex phenomenon of shopping centres development; • as management has specific expectations reflecting the consumer behaviour; • the sales revenue and the tenants mix. Planned shopping centres are not just direct to a spatial demand in a classical economic sense, but there are complementarities between spatial and temporal dimension.

15. Conclusions • A new development of shopping centres in mature areas should address, in short, a number of considerations including: • a rational shopping behaviour tends to minimize the space-time, not only in terms of distances from the residence but also in terms of enjoying and using alternative routes and multi-channel spaces; • attractiveness of a centre can be decomposed in its characteristics that have a value in terms of utility for the consumer;but on the other side represent a spending item in the income statement from the management company standpoint; • shopping behaviour can manifest in complex ways, related to the entertainment, leisure, game, freedom of movement and other phenomena, such as tourism, business, etc. • merchandising mix is still an important element for the owner, but today takes a different value, albeit not lower, for the consumer considering the partial saturation-substitution and the monotonous look of the retail supply;

16. Purposes • It would be more sensible to focus on specialization and greater characterization of the shopping centre image, even though, it would be more risky and more complicated to convert, especially during a crisis time. • It would be necessary to develop a new research starting point with a focus on the use of the space-time and on the level of substitution between traditional shopping experience and virtual sales channels.