Shopping Center Project
Looking to expand in scope and sales through new shopping center projects, built upon Sojitz's 10 year track record.
*The Shopping Center Project was being managed by Sojitz New Urban Development Corporation as of August 2013 when this story was first posted, but the project was assumed by Sojitz Commerce Development Corporation in April 2014, and the company name and so forth appearing in the article have been corrected to Sojitz Commerce Development.
From the perspective of real estate development, there was a strong tendency to see shopping center(SC) businesses as a simple process of “build and sell.” Sojitz, however, treats our shopping center projects as retail businesses rather than real estate, and we develop them on the basis of providing “valuable management capabilities” to our customers. In this story, we talk about the work that goes into operating a shopping center, from development to sale, as well as our vision for the future of Sojitz’s shopping center business.
［News Release］MALLAGE SHOBU’ Large-scale Shopping Center in Saitama Prefecture, Developed by the Sojitz Group, is Scheduled for its Grand Opening on November 28, 2008
［News Release］Sojitz Transfers Assets of a Subsidiary (Mallage Shobu)
A Rough Start in the Wake of the Lehman Shock
Sojitz first got involved in the large-scale shopping center industry dates back to the opening of Mallage Saga in 2003. It was a time when generalized super markets were changing over to a more specialized model, largely to meet the rapidly diversifying needs of consumers. Impetus also came from the rising construction of large-scale shopping centers following a number of legal reforms around 1998.
In the intervening years, Sojitz opened Mallage Kashiwa in 2004, followed by Mallage Shobu in 2008. Hiroki Kono, President & CEO of Sojitz Commerce Development, describes the situation saying, “It was enough to make the blood drain from your face”:
“In the wake of the Lehman Shock, some tenants who we had initially scheduled for move-in were suddenly dropping out. Three months before opening, we only had contracts for 60 percent of our tenants. We got off to a rough start. Even after we opened, tenants were packing up shop after sales didn’t take off like they hoped. In the industry, this is what we call a ‘wall.’ Still, we held out hope that the remaining stores would continue to work on ways to increase sales and consider what steps they needed to take for their business.”
With the dawn of the large-scale shopping center, consumers’ options have grown. It has become an industry where only the strong survive, as tenants are always concentrating on which facilities they should move into to best increase their sales. A rise in tenant sales also means a rise in profits for Mallage. For this reason, Mallage began a practice of trial and error, including intensive promotional activities targeting tenants whose products will sell best or who have the ability to bring in customers.
Shopping Center Projects under Sojitz Commerce Development
Four and a half years after opening, tenants’ sales at Mallage Shobu have risen 30%. The centers in Saga and Kashiwa have seen similar sales growth. Actual management of the facilities is split between the Sojitz Commerce Development and the on-site management office for a total of 48 people (14 from SNUD, and 34 on-site staff).
There are three main kinds of work involved in running a shopping center. The first is work which increases sales at the facility, such as increasing customer numbers through leasing, events, and sales promotion. The second is operations management. That means raising the management quality at the facility and keeping management costs at an appropriate level. Last is accounting work, such as money management and the handling of accounts.
The SC Planning & Promotion Department is in charge of negotiations with tenants. General manager Takehiko Nakano has this to say about the leasing process:
“It is no easy matter to recover after your reputation on the market takes a hit. That is why ever since the Shobu center first opened, I have always kept in mind the necessity of working quickly to secure tenants. At first, many potential tenants would not agree to meet with me or were obviously disinterested in what I had to say. But it was during the second year after the Shobu center opened that I started to get a feel for negotiation. I came to realize that the way you go about it can make or break a deal.”
When tenants’ sales increase, that news is passed around by word of mouth, whereupon you get even better tenants. The representative example of this would be the famous clothing brand branch which opened this spring.
“The truth is that the brand turned us down four times in the past. The biggest reason was that they had already opened a number of stores in the surrounding area. However, since Shobu’s reputation had risen considerably since we first opened, we approached them again and were able to secure a deal by driving a hard bargain. We worked in every well-received promotional strategy we had for the store’s opening, and as a result, sales during the opening period made the store one of the top the branches, not only in the surrounding area, but among all the brand’s stores in Japan which launched around the same time. They were equally surprised, saying, ‘It was all thanks to Mallage’s sales promotion.’ Since then, I hear they have used our sales promotion methods as a template whenever they open a new store.”
Valuable Functions Born from Hardship
This fall, the sister brand of the above-mentioned brand will open a store at Mallage Saga. Sojitz had approached them about tenancy a few years prior, but they responded by saying that they were considering tenancy with a rival shopping center and that they were unsatisfied with the Saga center at that time.
Sojitz was unable to make the deal. There was a time at the Saga center where the appearance of powerful competitors caused a sharp drop in sales. Sojitz was able to quickly recover profits, however, by working on initiatives aimed at increasing the sale of property, such as switching out leases on our large-scale tenants and promoting regional products through a sponsorship tie-up with the soccer team Sagantosu, as well as initiatives focused on operations management, such as choosing to cut costs on facility maintenance.
A mall is like a living creature that changes shape on a daily basis. Through the efforts of the three-pronged management team-the HQ Investment Management Dept., the Sojitz Commerce Development headquarter, and the on-site management office－the facilities are able to evolve into something new day by day. That evolution is tied to the positive feedback they receive from local customers, as well as the reason the store gave for finally moving in: “Mallage Saga just gets better every time we come!”
Investment Management Dept. Manager Naoki Yokoyama had this to say:
“The experience you gain from overcoming a difficult time is extremely valuable. Even if things are fine for your management externally speaking, it’s all meaningless if a tiny setback leaves you unable to function. After two years of implementing strategies from every perceivable angle to increase the value of shopping centers, we’re selling off Mallage Shobu. That does not mean we are pulling out of the project, however. Our track record proves we are qualified to work on expanding into new areas including investment, building upon the management capabilities that we developed at Saga, Kashiwa, and Shobu. I believe that given our high capabilities and superior staff, it would be absurd not to put this experience to work in our next project.”
What Makes a Sogo Shosha a Sogo Shosha
One of the growth strategies currently proposed for future shopping center projects is to utilize the management capabilities Sojitz cultivated through the three Mallage centers to offer project management on contract to facilities under different ownership.
The first of these projects is the Chikushino Belleza shopping center in Fukuoka which Sojitz has been contracted to manage. The project started after news of increasing profits at the Saga center traveled by word of mouth from tenant to tenant, eventually reaching the owner of Belleza. With the results of operating Mallage for ten years, after drawing up a new budget and making a presentation to the owner, they landed the contract. Sojitz took over management of the shopping center in May of this year, and the management staff-on-site management staff from Mallage, members of the Sojitz Commerce Development headquarter and the Investment Management Dept.-are currently reworking the operating budget.
Aside from the Chikushino Belleza project, the Investment Management Dept. and SC Dept. are also working to further expand their business, including new management contracts, and shopping center revitalization projects in which they utilize their management prowess to increase the value of old, acquired shopping centers. Sojitz is hoping to try their hand at launching more new properties too, be it for foreign companies breaking into the shopping center business in Japan or for Japanese companies moving abroad. Yokoyama says, “Property management is not an investment-based business, and is an extremely low-risk, stable enterprise. In terms of profitability, however, we must strike a good balance between this and our regular investment projects. With this many management functions to provide customers with, I think there is plenty of value in having us engaging in project investment as well.”
A Sogo Shosha is seen as having many disparate functions simply because they are involved in promoting so many diverse businesses. “Facilitating growth of shopping centers like this is the representative example of the kind of business we aim to bring to fruition-businesses which make use of our company’s comprehensive abilities.”
In the future, these departments will broaden their perspective to expand both the sales and scale of their business under new growth strategies. The key to shopping center businesses is not real estate, but the development of extremely creative functions further downstream, closer to the end-market. Sojitz’s 10-year history with Mallage has laid the foundation this development.