By Anthony Dukes
September 20, 2018 at 5:00 am ET
By most accounts, suburban malls are going through a slow and painful death. Even if a mall is not closing, it often becomes office space or a mega church. The current fate of malls is written in the numbers:
— In 2014, 20 percent of malls reported vacancy rates of over 10 percent, up from 6 percent in 2006, according to coverage in The New York Times.
— Time magazine has cited real estate investors who expect a quarter of the 1,100 malls in the United States to close by 2022.
— Mintel Research surveys indicate that in 2007, 24 percent of survey respondents noticed mall store vacancies. In 2017, that number reached 48 percent.
It is impossible not to associate this trend with online retailing, which has been growing by 11 percent annually. According to Mintel Research, 27 percent of survey respondents indicated intentions to increase the amount they buy from Amazon.
But some malls are thriving. The Grove in Los Angeles, built in the 2000s when e-commerce was predicted to kill the brick-and-mortar stores, is among the most profitable malls in the country. Woodbury Common, an outlet mall 60 miles outside of New York City, grosses about $1.3 billion annually. Its owners recently renovated and expanded with expectations of a growing market. Developers of successful malls recognize that some features of shopping are not, in fact, better online.
What can offline retail offer in today’s economic and social environment?
Immediate possession. Physical stores, like those in malls, maintain their inventory to accommodate consumers’ desire to take ownership at the time of payment. Immediate possession is an important benefit for many purchase occasions. Two-day delivery just won’t do when buying a replacement battery for an electric shaver or a part to fix the kitchen faucet.
Physical inspection. When buying online, it remains impossible to feel the fabric or test the sound quality. Such inspections are particularly relevant for first-time purchases. Virtual fitting rooms are helpful but cannot accurately depict how well the material is put together. And online ratings are often imperfect measures of quality because of fake reviews.
Advice and guidance. Electronics retailer Best Buy understands this quite well. The company recognizes that customers who enter its stores are not as tech savvy as online customers. As such, Best Buy stocks older product models and staffs its stores with patient salespeople to explain product features and give advice.
Social interactions. For many mall-goers, socialization is still the primary function. Parents bring their kids for back-to-school clothes. A trusted friend provides a boost of confidence for a fashion purchase. And bargain hunting for fashion is a team sport. E-commerce can’t compete on this simple but basic dimension. To exploit this very important factor, today’s profitable malls have been reconfigured to accentuate the pleasures of being out with company and socializing.
Segmentation by geography. Finally, because malls have a physical location, they can be used to identify and segment customers based on their shopping tastes. For example, geography sorts consumers by their tastes, shopping habits and income levels. Take, for example, Santa Monica Place, a mall near the beach and the city’s famous pier, which is a tourist destination year-round. Marketing researchers have shown that vacationers tend to be less price-sensitive than local, resident consumers. Therefore, Santa Monica Place is an attractive location for sellers of luxury brands who can expect consumers willing to open their wallets. In a similar way, geography is an important factor of success for outlet malls.
Successful malls will exploit these advantages by adopting the following retail formats.
Showroom model. This mall format contains showrooms with reduced or little inventory. Nordstrom Local is one such showroom. It carries no inventory. The idea is to maintain a mall space that facilitates consumers’ physical inspection of products without taking immediate possession. Relatedly, the ability to maintain customer relationships is an advantage of the showroom model. Tesla, Apple and Amazon have all instituted this format at malls in the United States. For shoppers strolling with friends in the mall, the showroom can be a reminder of the brand and an invitation to come in and browse new products.
Experiential/lifestyle centers. For decades, the mall has been a destination, not just for shopping, but also for sharing experiences with friends and families; for example, teenagers who come to hang out with their friends, or parents who take their children to the mall in December to meet Santa Claus. Such experiences, of course, are impossible to replicate online and remain, perhaps, the most important comparative advantage of the mall. Experience services embody not simply a collection of individual services but the interaction of the mall environment with the consumer. The new malls of this sort, such as The Shoppes at Arbor Lakes in Maple Grove, Minn., are sometimes referred to as “lifestyle centers.” For example, the Silicon Valley lifestyle center, Santana Row, simulates downtowns of yesteryear with its own Main Street, town square and urban row houses.
Outlet malls. Rental revenue from outlet malls accounted for 22.5 percent of revenue from all mall formats in 2017, meaning that nearly a quarter of all mall activity today stems from the outlet. Outlet malls have become a key marketing channel for fashion brands. Such malls are beacons for bargain hunters — perhaps now even more so given trends in retail. As the upscale lifestyle center has taken the place of the suburban mall, consumers have fewer opportunities for bargain hunting. Geography becomes a more relevant vehicle to identify the deal-prone shopper. By agglomerating far from the city, branded manufacturers set “deals” for the bargain hunter without harming their caché at urban, flagship locations.
In assessing the long-term future of the mall, one might imagine that as millennial tastes are eventually replaced, the suburban mall will once again be a novelty. Imagine, for instance, young adults of 2050 rejecting lifestyle centers as passé and hearing their great-grandparents’ fond recollections of the suburban mall. Strange as a bright future for malls may sound today, remember that the revival of downtowns was equally farfetched in the 1980s.
Anthony Dukes is a professor of marketing at the University of Southern California’s Marshall School of Business and associate editor of the Journal of Marketing Research, Management Science, Marketing Science, and Quantitative Marketing and Economics.
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