The Future of Malls … How will Shopping Industry Change in Saudi Arabia?

Over one year and a half ago, namely on May 22, 2019, Arabian Centres Co. – the largest owner and operator of commercial malls in Saudi Arabia – began trading on Saudi Stock Exchange (Tadawul).

Ample room for growth

In the Kingdom – namely in the major four cities – Riyadh, Jeddah, Makkah and Dammam – the gross leasable aera (GLA) of shopping malls per capita stands at nearly 0.4 square meter – a way below the international standard set by the International Council of Shopping Centers (ICSC) at 1.1 sqm per capita.

Like its peers, this industry, which has many active players, led by Arabian Centres with a market share of nearly 16%, did not survive the COVID-19 impact. However, it might have been one of the most sectors that was able to overcame the pandemic challenges, maintaining faster-than-expected growth.

Before discussing how commercial malls and shopping centers will be able to overcome the COVID-19 pandemic fallout, it is necessary first to explain how these malls changed the behavior of many consumers in the last few years, and how they shifted from retail stores to those multi-purpose destinations that have become part of people’s lifestyle.

Adaptation to consumers behavior change

Recently, shopping at commercial malls and centers has been significantly on the rise as many people go shopping at malls every day, despite the strong growth of e-commerce that might have negatively affected traditional retail stores. However, e-commerce now finds it difficult to budge malls from its position, most probably as these malls provide something different for consumers.

Thanks to commercial malls and shopping centers, shopping has become a social leisure activity, rather than a commercial one. People started to go shopping at malls not only to buy, but also to pass the time and enjoy social and entertainment experience. Therefore, e-commerce merchants and traditional retail stores cannot compete will malls on this level.

In other terms, going to shopping centers which have increasingly become part of people’s contemporary lifestyle helps consumers achieve many targets rather than simply normal shopping. Every time majority of mall shoppers go shopping, they seek to enjoy an integrated experience that is carefully designed by the administration of the mall. Such experience includes cinema halls, restaurants, cafes, entertainment halls, sports centers and beauty salons.

Many studies proved that the entertainment experience of shopping offered by commercial centers and malls has a positive impact on the number of shoppers, the time they spend, as well as the revenues and profit of those malls. This means that shopping centers largely benefit from the limited options of entertainment and social networking among a large number of people in real life. 

Shopping at malls has recently become a social activity of family members, regardless of the different age of the same family members. It is easy for everyone to find something of interest that fulfills their needs at those malls, which are keen to satisfy the needs of everyone including children. Therefore, the shopping mall industry is successful since its emergence to date.

 The COVID-19 crisis … a step back or a step forward?

It is widely believed that the strong push online shopping received from the COVID-19 pandemic has eliminated or on track to eliminate the existing commercial centers and malls. However, this perception is inaccurate, as it does not take into account the true situation of market on one hand, and the psychology of consumers on the other.

Believe or not, the COVID-19 pandemic created new opportunities for shopping centers despite the unprecedented pressures they suffered in the last months. However, these opportunities pose great challenges that should be overcome first. In other terms, the owners of commercial centers need now more than any time else to accelerate their plans, test new business models and work seriously and innovatively.

Three changes

The first: What is really important for commercial centers is that they should develop their position and image as a social destination. In the years to come, shopping malls and centers can only become a multi-purpose destination for consumers in order to offer a wide range of entertainment activities and other services.

As may countries are going to lift the COVID-19 restrictions, many people are expected to long for more social interaction, of which they have been recently deprived. This is what commercials malls and shopping centers can offer. Accordingly, shopping centers and malls will no longer be the destination that fulfills the daily needs of consumers, as consumers can get most of those needs from the nearest stores.

People usually go to shopping malls, as they provide them with a unique experience that cannot be found on the Internet or anywhere else. Such experience begins from the moment consumer arrive at the mall and try to find a place to park their cars, and ends when they leave the place. Throughout this period, if the mall fails to provide a wonderful experience for the consumers, they will most likely not come back as long as they can buy the same things online.

The second and the most important of these changes is the need to embrace technology and be present online. Online shopping has several advantages, and shopping from stores located inside malls has other advantages; however, consumers often want to get both, as they want to see the product online in order to know more about it and compare it with other products provided by competitors. At the same time, consumer want to touch the product before buying it.

In a survey conducted by the British Council of Shopping Centres (BCSC) in 2015, 85% of shoppers said that they wanted to touch and feel the products before making their purchasing decisions, while 71% of them said that, if there was a product available online and at the same time it was available in a nearby store, they would prefer to buy it from the store.

In the field of shopping, there is a phenomenon called "showrooming", when consumers search for a specific product they need in stores and shopping malls before buying it online. Recently, however, this phenomenon has diminished in favor of the more common "webrooming", which means that consumers search for the product on the Internet and then buy it from a real store.

For example, the US Apple understands this and is well aware of it. Finally, it can only sell its products via the Internet, but it is keen to spread its real stores around the world because it simply realizes that consumers are not shopping only for the getting cheapest prices, but rather to get something else called experience, and this is the point at which malls can outperform online merchants.

Buying from shopping malls and buying online are two complementary experiences for consumers. While websites need huge investments to exist on the ground, as is the case with Amazon recently, shopping malls and the stores located there need only to invest a small amount of money in building a website, where all the products offered for sale will become available.

In the same vein, shopping malls need to use modern digital and technological tools, such as augmented reality technologies and mobile apps in order to increase productivity and efficiency to the maximum possible extent on one hand, and to create a dynamic, attractive and very interesting experience for consumers, who are always looking for means of comfort on the other hand.

How have safety and security become everyone's priority?

The above takes us to the third change that commercial centers must adopt permanently, especially after what the whole world went through during the COVID-19 crisis. This change is related to the safety and security of consumers and their comfort at the same time. COVID-19 has changed consumers' expectations and raised their concerns about their health and safety, which made them more anxious about visiting closed shopping malls.

Therefore, shopping mall administrations should be aware of the fact that, today most shoppers have opposing emotions, as they on one hand want to get in and out of the place quickly in order to preserve their safety, and on the other hand they want to socialize and get in touch with each other. Attempting to satisfy consumers on both sides is a difficult challenge for malls, but this is the case.

To sum up, providing an environment that is safe without direct dealing and at the same time has a considerable amount of interaction and socialization is the key to bring people back to shopping malls in the coming months. Moreover, the shopping malls that invest in tools and applications that can make consumer experience safer and smoother are the ones that will likely be the fastest to recover from the repercussions of the COVID-19 pandemic.

However, owners of stores and malls who strive to achieve the high standards of safety and hygiene may find themselves forced to incur additional costs that may affect their final profits. Accordingly, their challenge will be to determine which costs they should incur and which ones should be passed on to the consumer.

To conclude, there may be many different theories and expectations about the future of malls, but one thing is certain: the shopping malls industry is on the verge of revolution. Successful malls in 2021 are unlikely to be the ones that are still depending on old concepts.

Sources: Argaam - The Possible

Study: The future of the mall Building a new kind of destination for the post-pandemic world

Study: The Future of the Shopping Center Industry

Study: KSA Market Summary Q3 2020