The shopping mall’s savior is starting to eat itself

Bloomberg

Stephen Wall’s restaurant chain Pho is the kind of tenant that mall landlords would love to attract. The Vietnamese menu is right on trend, the business is expanding and, even better, it has a track record of success in shopping centres.
Yet he thinks that even restaurants like his won’t be the savior of malls suffering from the rise of internet retailing and mobile phone addiction.
“Food is not the solution for most landlords. Saturation has occurred because too many restaurants are being put into shopping centres,” said Wall, who founded the UK chain with his wife, Jules, in 2005. “Operators are becoming wary.”
As competition from the likes of Amazon.com Inc and Asos Plc intensified, British mall owners looked to food as a way to stay relevant. People would come to the restaurants to eat, buy some clothes in the shops while there, and the extra spending would allow the landlord to boost the rents. A simple, virtuous circle.
Instead, food and beverage operators have been hurt over the past 12 months by a combination of rapid expansion and a consumer-spending slowdown. An influx of private-equity investment into restaurants led some chains to open too many outlets that aren’t breaking even. Popular names like Gourmet Burger Kitchen, pasta place Carluccio’s and the Jamie Oliver chain — often found at big malls like Westfield and Bluewater around London or Manchester’s Trafford Centre — have been among those suffering. Nationwide, the number of restaurants going insolvent rose 24 percent last year, compared with 2017.
A combination of increased competition, rising food costs because of the pound’s weakness after the Brexit vote and a government apprenticeship levy have hurt operators.
Many of the brands are also very similar, and consumers can’t differentiate between them in any way other than price, according to James Child, a retail analyst with EG.
Three years ago, Intu Properties Plc, the owner of 17 UK malls including two of the nation’s largest, pointed analysts to research from a broker estimating food and beverage operators would eventually occupy about 25 percent of space in malls. New brands would be launched that would help drive revenue for owners, the analysis said. When the beleaguered landlord, left at the altar by two potential buyers last year, announced a turnaround plan in July, food didn’t merit a mention. Instead, Intu’s new hope is that salvation lies in building hotels and apartments at its malls.
The stock is down 56 percent in the past year.
Any landlord still waiting for food operators to help them out will likely be disappointed. Food and drink operators took 13 percent of newly leased space in shopping malls in 2018, the
lowest level in at least six years, according to Radius Data Exchange.
A year earlier, it was 20 percent. That’s a much wider decline than in the overall retail market, where food and beverage businesses took 23 percent of newly rented space in 2018, about three percentage points less than in 2017.
One of the main problems is that the malls are competing for diners with downtown areas, which offer many more attractions. In London’s West End you are feeding people who are in the area for work, the theater, shopping or just wandering around, said Brian Bickell, chief executive officer at Shaftesbury, which recently leased a former retail center in the Covent Garden neighborhood as a food hall.
Malls, by contrast, offer far more capacity than there is demand, according to Ewan Venters, CEO at Fortnum & Mason, the upmarket retailer which recently opened a dining area in the Royal Exchange, a small luxury mall opposite the Bank of England.