Why Innovation Could Be The Call Of The Mall

shopping mall

You don’t get to be Simon Property Group with $2 billion in income during a bad year without being crafty about retail. You don’t get to be Brookfield Property Partners with 2,000 properties in 30 countries without knowing something about weathering tough times. These mall developers and others — with a little help from their friends — are working on reinventing the mall, not killing it. With $160 billion in sales per year, malls still bring in more revenue than eCommerce ($138 billion). The mall is still a compelling retail venue.

“What we care about is building the business for the future,” Simon Property Group Chairman and CEO David Simon said on the company’s Feb. 4 earnings call. “We focus on gross margins, focus on increasing the quality of the product and we don’t care about comp sales … There is a too much of a focus on quarter-to-quarter comp NOI growth. We get it. We focus on it because we love cash flow. But at the same time, we’ve got to make investments for the future that will accelerate that comp. There is no difference. The only difference is that we don’t panic and others do. And that’s why we’re here calm about it.”

One of the keys to that future and some clues to mall innovation and potential renaissance (comeback might be too strong a word) comes from an overlooked project by the Urban Land Institute (ULI) in late 2019. The effort was ambitious, combining mall developers, public officials and real estate designers together to identify what happened to bring malls down and how to build them up.

The report goes through most of the ills that have been identified for the decline of mall traffic and sales including the problems with anchor tenants like Macy’s, Forever 21 and JCPenney. One of the report’s differentiating qualities is the amount of weight it gives to traffic patterns. Malls were built on massive auto access, and traffic patterns in the suburbs have changed and become crowded. Access just isn’t what it used to be, therefore the mall trip is a tougher decision.

The report makes a good case for the mall as an extension of the communities it attracts. “Create a soul, and uplift the human spirit,” the ULI report says. “Place making, authenticity, a range of experiences, and a sense of urbanity all come together in successful malls to help create a soul that resonates with customers. But there’s more to the story. At the heart of a mall is merchandising. It’s always been true, and it always will be. Today, the most successful centers provide a diverse mix of goods and services.”

The decline of the mall (not the death of it) is an opportunity for reinvention and integration into the community, according to ULI. Developers who are renovating old malls or building new ones should evaluate the changes that have taken place now that eCommerce is a threat, and not bristle against them. The goal, it says, is to create a plan for growth that reflects the community as well as turns a profit. If the public (community government) and private sectors cooperate, malls can become profitable and vital community centers. “When they work in partnership to rethink the mall, the public and private sectors have a tremendous opportunity to optimize long-term real estate returns, augment the image and appeal of the community, strengthen the community’s economic vitality, and enhance the surrounding residential neighborhoods,” the report says.

What does that look like? Let’s go to Vegas in April. The mega AREA15 mall opens in April. It is being treated not only as a destination for locals and tourists, but as a retail incubator. Its developers are looking to encourage retail partners — from creatives to technologists — to test new design concepts and technologies with a boost from Intel, which is contributing its technology such as 5G and wireless infrastructure.

AREA15 is built on flexibility. It is billed as “the gravitational center for the new experience economy.” Its technical and physical infrastructure will be modular, allowing for innovations coming out of the Intel Experience Incubation Hub to be tested for proof of concept and scalability in a variety of forms, Maybe it’s a pop-up; maybe it’s a short-term retail presence. But permanent, static retailing is not part of the plan. Experiential retailing is.

“The rise of the ‘experience economy,’ fueled by rapid shifts in technology-enabled design and culture, has resulted in the business-critical need to understand customers — not only Gen Z — and use that data to design a real-time personal experience,” says a statement from Intel.

Its research shows a potential proof of concept especially for the younger Vegas attitude and population. It says 81 percent of Generation Z prefer to shop in stores, and 73 percent like to discover new products in stores. This creates an opportunity, not a crisis. This demographic, after all, is on track to become the largest generation of consumers by 2020 — responsible for $29 billion to $143 billion in direct spending.

A new report from accounting firm BDO says one of the keys to bringing consumers back to the mall is payment flexibility. “Truly seamless shopping journeys mean eliminating friction from the browsing stage all the way through to purchase, regardless of channel. Customers demand efficiency in their transactions and value having options,” according to the firm’s 2020 Retail CFO Outlook Survey. “A lack of payment options at checkout online can lead to cart abandonment. For retailers, this requires integrating digital payment processing systems in-store and adding plugins to checkout pages online and in apps.”

What does that flexibility look like? In a word: control. The report notes more than one in three consumers (35 percent) said they would prefer to pay for a big ticket item in a series of installments rather than in full. It recommends interest-free buy now, pay later payment services like Klarna or Afterpay.

Interesting that the CFOs in the survey have buried the term “omnichannel.” It is now synonymous with “retail.” It says consumers don’t care whether they’re being serviced by a brick-and-mortar store or an eCommerce provider, they care about convenience or experience. “Savvy brands are figuring out how to blur their channels, while  developing strategies to seamlessly integrate new ones, including social and voice commerce, into their suites. It isn’t about being everywhere at all times, it’s about being available to the right customers in the right ways, as dictated by them,” according to the report.

Anchor tenant trouble from Macy’s, Forever 21 and JCPenney have added to the troubled mix that is the American mall. The expertise at the developer level will bring a real estate sensibility to maximizing the entire property, not just one tenant. Its time to bring malls to the people, not vice versa.