Asset managers should find out what consumers really want fro m a shopping centre in order to ramp up performance, says Karl Kalcher
No other asset class owner, it seems, than real estate investors is so convinced that results-oriented asset management is optimised in the hands of ‘temporary' managers. Therefore, investors and portfolio managers could arguably secure their positions through re-evaluating their assets with systematic regularity and seeing them through ‘new eyes'*. Indeed, there is plenty of evidence that optimal returns are missed through, for example, failing to have a sensitive enough finger on the consumer pulse or relying too much on gut instinct.
There are five striking examples of the gulf between myopic management perception and consumer reality:
Shopping centres in England: For years, good marketers have known that women have changed their fashion habits, thinking nothing of combining a skirt from Primark with a jacket from Nicole Farhi and a blouse from Etro.
This study shows (figure 1) that leasing policies of shopping centres are way behind consumer wishes. Managers are still too hung up about ‘snob value' and only attach half as much importance to adding more value-based retailers to their customers' favourite shopping centre than shoppers do.
This is a perfect example of the necessity for ‘new eyes'.
Safety and security: (figure 2) are still primary considerations for consumers when choosing a particular shopping centre over another. This study used five definitions to assess the perceived safety and security standards of the shopping centre: security personnel visibility, lighting, way finding, loitering and emergency phone access.
In each of the five segments, centre managers overestimated their achieved quality standards by a large margin. Arguably, this example infers that opening one's eyes to consumer realities is the first step for many asset management improvements.
Shopping malls in the US: As part of a major insight study for one of the largest mall owner/operator in the US it was discovered that North America's favourite department store for shoppers was not Macy's, JC Penney or Nordstrom: it was in fact Target. More controversial still, the study proved that the ideal anchor configuration for a standard mall was a pairing of Nordstrom and Target.
This insight, and the subsequent recommendations, was rejected in boardrooms. The consumer facts just could not shift the long-established gut instinct about asset positioning and conventional marketing platforms.
We shall never know the amount of money lost, but we can guess. Some three years after the study was delivered, a major competitor implemented this recommended anchor store configuration very successfully, while the majority of the industry lauded it as a significant innovation.
Asset management priorities, shopping centre refurbishment in the US: The renewal programme for the property was largely agreed prior to the appointment of this asset manager. Faced with a catalogue of investment demands from marketing and operational colleagues, the asset manager decided to use customer choice modelling to evaluate footfall and spending impact of all suggestions, which were largely based on anecdotal evidence and instinctive beliefs (figure 3).
The model clarified the importance of every investment idea for the two most important customer groupings.
Managers were astonished about the huge differences between the two customer segments, even for basic options such as free parking (an operational investment). Indeed, seeing their business with new eyes enabled the project leaders to re-evaluate their overall market positioning and to align the entire refurbishment programme accordingly.
Leasing productivity simulation, new retail development in northern Europe: Wary of being presented with the ‘usual suspects' for an up-market designer village, the asset manager challenged the leasing team to take a ‘new eyes' approach and to prove the effectiveness of their tenant proposal, not only in terms of financial parameters, but also in relation to customer relevance.
Eventually, the development team decided to employ decision science tools to meet this challenge, evaluating 50 brands for a 30-shop portfolio. The final simulation tool enabled managers to ‘lease' any combination of brands and calculate the effect of their choices in terms of overall customer relevance and across a spectrum of sub-segments, such as gender and income.
Some financial benefits of this exercise were more subtle. Being much better informed about the particular strength and relevance of individual brands to the scheme, the asset manager was able to be much more discriminating in approving deals, rent-free periods and the like.
The above are five ‘real life' examples of how a new mindset and crunchy analytics assisted alert managers to make more informed investment and asset management decisions. But do these examples suggest that asset management is essentially a research game only? Not really.
Instinct and nous are the lifeblood of the industry and experience is surely as valuable as ever, but there is an important asset management insight up for learning from all the case studies: getting ‘under the skin' of customers in a curious and serious way will make you a smarter investor.
The daily grind of management frequently obscures the vision for initiatives, so the crux of my hypothesis - that seeing an asset with new eyes is the surest way to stay ahead - is, I believe, as valid as ever.
*‘The real voyage of discovery consists not in seeking new landscapes, but in seeing with new eyes.' Marcel Proust
Karl Kalcher is managing director of MindFolio
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