05/13/2015
Asia / Industry
Rising online sales are adversely affecting sales of physical stores. We outline three key strategies Asian retail landlords need to adopt to overcome this e-commerce threat.
Rising online sales are adversely affecting sales of physical stores. A way to ride this e-commerce wave would be for traditional retailers to adopt an online-to-offline (O2O) model that enables them to use their physical stores as collection points for online sales. However, O2O is still a work in progress and most retailers in Asia are not completely ready yet. With the rise of online channels, the number and the size of physical stores required by retailers may decrease, likely leading to the demise of less-popular malls.
There are also three key strategies that mall operators can employ to mitigate the impact of e-commerce. Firstly, they can raise exposure to food & beverage, entertainment, lifestyle and luxury segments, which are likely to ease the impact from online sales. Another strategy is to implement O2O offerings in the key shopping malls in order to help retailers raise their offline sales. Our analysis shows that most Asian mall operators are adjusting their tenant mix, but O2O offerings are still in an infant stage of development. And lastly, mall operators can focus on large malls in strategic locations, where events and flagship stores can be hosted. This strategy has proven successful among UK mall operators in moderating the e-commerce impact. This could also entail selling non-strategic or less-popular malls.
In Asia’s retail property sector, China’s retail landlords are the most at risk as they are facing increasing threat from online retailers. Shopping malls with higher exposure to Tier-3 cities and mass market product offerings are suffering the greatest hit. Elsewhere, the impact will be less pronounced in Singapore and Hong Kong due to their well-developed retail infrastructure and shopping convenience. However, we believe that less-popular malls in Singapore and Hong Kong could see some adverse impact.
In our view, Wharf, CR Land and Mapletree Commercial Trust could weather through the e-commerce challenge. Wanda may also survive due to its first-mover advantage in Tier-3 cities and earlier-than-peers’ O2O initiatives. Powerlong, CapitaLand Mall Trust and Frasers Centrepoint Trust may face challenges at selective malls due to their less-favourable tenant mix or locations.
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