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Key factors required for successful development of shopping malls

Recently, Korea’s retail giants have been announcing plans to develop shopping malls.

Retail professionals view this as a result of changes in shopping trends, the adoption of international shopping culture and increased leisure time. But how have local shopping malls been developed so fast in terms of the needs of developers and tenants?

Low commission rates and brand identity

Shopping malls embrace not only global specialist private-label apparel, or SPA, stores but also brands that failed to secure space at department stores ― perhaps due to high commission rates or their lack of fame.

Initially deemed an alternative, shopping malls became a good option for some nascent yet promising local brands in Hongdae, Garosu-gil and other shopping districts to expose their products to the public.

A fashion multistore from Hongdae saw its monthly sales triple to around 200 million won ($175,000) after opening a new store within Noon Square in Myeong-dong, downtown Seoul. Spicy Color, another popular brand, recently launched in Time Square in western Seoul and Lotte Mall in Gimpo, Gyeonggi Province, is also experiencing a tremendous increase in sales.

For these brands, shopping malls are new opportunities. For shopping malls, stores have their own individual spaces. Thus they can create a concept for their own brands. For consumers, they offer a fresh shopping experience. An owner of a male shoe multishop on Rodeo Street in Apgujeong, southern Seoul, said he was seeking to open a store in a shopping mall as it would help demonstrate his brand’s identity, which is difficult in department stores, where goods are in general on open display.

Retail investment by overseas investors

In the early 2000s, when the global economy was stagnant, many foreign investors were seeking more lucrative investment opportunities. Some aggressive investors became interested in failed strata-titled malls, which sell spaces to raise funds and gain profits, therefore leasing is not quite active, leading to inappropriate size and price for quality tenants especially with a large number of owners in one single mall. They teamed up with investment firms from the U.S. and Singapore to successfully renovate two strata-titled shopping centers in Myeong-dong.

When it comes to retail facilities, unlike office buildings, the focus is not only on development planning but also on subsequent management. Investors tend to have a long-term selling plan without the large workforce that department stores have, so they outsource mall operations to property management companies. Leasing shopping malls collect monthly rents and gives greater benefits in terms of operation than department stores. As such, shopping malls may well fulfill the needs of developers.

Four keys to building successful shopping malls

Against this backdrop, many big retailers have hopped on the shopping mall bandwagon. The latest Lotte Mall in Gimpo represents a mix of a hotel, shopping mall, department store, movie theater and supermarket, attracting shoppers throughout the region.

The first key to a successful mall is to adopt a system where only one owner and one operator work together. Strata-titled malls, which involve shared ownership of some areas, may face limitations in crafting a good development plan. Without wise planning, it becomes really difficult to maintain the facility and get quality tenants.

Second, many developers think that a development plan is the overall concept for the mall but it is more accurate to describe it as the detailed coloring added to a layout plan, which requires meticulous work by professionals and thorough discussions with several different brands. Also, every successful shopping mall entails a different development framework, location, characteristics and consumption pattern. In fact, malls located at the center of Myeong-dong are considered successful cases, which went through elaborated consumer analysis and built market wisdom and sound relationships with tenants by Cushman and Wakefield Korea.

Third, if mall development is like software, the importance of the architecture as the hardware cannot be ignored. One of the great advantages of shopping malls is that each store can have its own identity. And the use of these spaces can shape the overall concept of the mall. Recently launched shopping malls show how much attention developers have paid to the interior and the exterior of the building.

Lastly, one of the most significant issues is mall operation. Who runs the mall determines whether its concept will last, however magnificent it looks. Many foreign real estate consulting firms including Cushman & Wakefield Korea provide mall management services based on their global networks. With these factors combines, I look forward to seeing how these malls evolve.
Dan Kim
Dan Kim

By Dan Kim, Associate director of retail services, Cushman & Wakefield Korea

The article was contributed by Cushman & Wakefield Korea, which consults corporate clients on leasing, sales and management services. ― Ed.
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