Maximizing Shareholder Value for Shopping Centers

by Katie Sloan

By Shah Karim, CEO, Saferock

It has been a banner year financially for shopping centers and malls. ICSC and NCREIF data show that NOI at malls increased 21.3 percent during 2014 reaching $28.62 per square foot, while overall shopping center NOI rose to $16.79, rising 8.3 percent over the year.

While malls and REITs have delivered exceptional returns, there may be cause for concern in the future. Indeed, a 2015 Emerging Trends® survey by the Urban Land Institute and PwC reports a 52 percent ‘sell’ signal on regional malls and a 46 percent ‘sell’ signal on power centers.

In the face of online competition and other challenges, shopping centers need to consistently find new ways to strengthen their financial value. It is crucial to understand what financial KPIs will improve performance across all sales channels and increase returns to shareholders and how operators deliver greater value to their retail partners.

Challenges for Shopping Centers

Shopping centers play an important role in the US economy, and boost the economic health of their local communities by providing jobs and taxes. According to ICSC, roughly 110,000 US shopping centers contributed $2.5 trillion of the total annual retail sales of $4.5 trillion in 2013. They also employed 12.5 million people, over 9.3 percent of the US workforce.

However, the commercial health of the centers may be disrupted by rapid changes in customer behavior, new consumer technology, and the dramatic growth of online retail. Shifting demographics in store trade zones are changing the financial calculus as well. 

Today, traditional retailers face intense challenges from new shopping formats, increasingly easier online transactions, and the growing purchasing power of Millennials and Hispanics.

Online shopping is becoming more convenient with Amazon Prime Plus and two-hour delivery, Walmart’s new home delivery for $50 a year, locker pick-ups, and more direct selling by brands.

By 2020, it is projected that Millennials and Hispanics will have combined buying power of 3 trillion dollars. Since younger shoppers do not habitually visit centers, we may witness an absence of today’s youth from tomorrow’s malls, unless we influence their behavior now. In addition, Hispanic consumers want a one-stop shopping location with the right items for the entire family.

In this context, we discuss how shopping center operators can enhance financial processes and improve shareholder value.

How to Maximize Profits

Highly successful managers set goals that are both measurable and realistic. They use decision-support tools that enable their merchandising and marketing departments to clearly separate winners from losers. They utilize KPIs to encourage financial accountability, require that results be accurately measured, and implement systems that are appropriate for the skill level of existing staff. 

Improve performance across all channels: To improve sales profitability over all channels, you should first understand how sales and profit relate to consumer actions. Then, by combining mall traffic and store data with retail sales, you can develop useful KPIs of the customer’s path to purchase.

The task for management systems is to measure the ROI of all marketing and merchandising programs, customer-facing offers, and brand promotions. By doing this systematically, management can observe the change from one week to the next. This helps managers identify where bottlenecks exist and where to intervene. They can then focus on increasing sales, conversion, and profits instead of being buried in reports.

How to maximize profits: Profits are at their maximum when marginal revenue is equal across all expenditure categories. Accordingly, management should invest more where marginal returns are higher than average, and reduce investment where marginal returns are lower.

Applying this core economic principle regularly leads to profit improvement, optimizes budgets, and increases shareholder value.

Accelerate ROI with AnalyticsWhether developed in-house or sourced externally, analytics similar to those from Saferock are very valuable. Our case studies confirm that such use of Big Data improves square foot sales, optimizes inventory dollars, and increases ROI.

Taking this to the next level, retailers have worked with Saferock to systematically optimize promotions for merchandising and marketing. The system measures SKU-level sales and profits, and then analyzes incremental returns on incremental spend for marketing, promotion offers, space allocation and working capital. This process has proven very effective in improving decisions.

Create value for shareholders and partnersSystems such as promotion optimization can get management to focus on profits with laser-like precision and improve free cash flow. They can accurately inform how much money specific brands, offers, and promotions make, and how much more productive one offer is than a competing one. They lead to a better handshake between brands, retailers, and shopping center operators.

Management can take this further by combining retail and mall data with social media to nudge customers in a preferred direction. This builds on the analytic concepts explored above that maximize profits and accelerate ROI.

If shopping centers and retailers measure sales and profit ROI with accuracy and share such information with each other, then shareholders will benefit. The work requires technical vision, but can be done quickly and at low risk.

Better promotion effectiveness and financial focus make shopping centers and stores more attractive to customers and generate beneficial returns. This builds loyalty, strengthens the brand, and improves profits where it matters most: at the store level. Eventually it creates greater value for the shareholder.


Shah Karim

Shah Karim is the CEO of Saferock ( ) and can be reached at: [email protected]. For more than 20 years, he has advised retailers on digital transformation, cost reduction, and turnarounds. He has developed systems and algorithms to precisely measure retailer ROI performance, Big Data analytics, personal learning, and enterprise content management.

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