The new American mall is an entertainment, not shopping, center

In E-Commerce, General News, Investment News, Management and Strategy by Fleur HicksLeave a Comment

If around the world retailers are troubled by the impact of e-commerce and a changing competitive environment, the US is where the real “retail apocalypse” has already started. Thousands of shops and hundreds of malls have closed doors in the past 20 years, and more will follow.

E-commerce is growing at a double-digit rate every year, and this trend is expected to keep increasing; by 2030, over 30% of retail sales in the US will happen online. At the same time, footfall in malls has been on the decline for a long time. Between 1970 and 2017 the number of malls quadrupled, while the population didn’t even double in the same period. According to a Credit Suisse report launched last summer, 25% of US malls will shut down by 2022. Ironically, many are now being transformed into Amazon fulfilment centres.

Physical stores are where most purchases still happen, but the retail landscape is changing quickly. And American malls are embracing the trends and looking to alternative uses to reinvent themselves, creating ways to coexist with digital retailers and surf the wave of disruption, instead of trying to break it.

Successful strategies include the shifting focus of shopping malls into services and experiences. By giving people other reasons to visit than shopping, malls can turn to the unique and create a closer relationship with the community it’s in, ultimately benefiting from the increased footfall.

Entertainment isn’t really something new in American malls. Amusement parks, interior playgrounds and pop-up exhibitions have been around since early 1990s. However, mall owners are becoming more creative, adapting its offers to entice shoppers and stay up-to-date with the latest technologies and trends.

Today, almost every mall comes with virtual and augmented reality experiences, family activities, gyms and yoga studios, just to name a few. SeaQuest, an interactive aquarium group, has all its current locations inside malls. Art galleries, museums, churches and comedy clubs are some other ideas being tested. Others invest in the community aspect, opening space for “street” markets featuring local artists and independent food producers.

For these businesses, being inside a mall also has its benefits, as most of the marketing is already built-in. The formula seems well-balanced: the mall provides space, parking and food, while the entertainment and services companies drive foot traffic.

However, not every place can be turned into a restaurant or a mini-golf course, which can make investors reconsider, even if lease values are down. This reality has made mall owners look at the mixed-use potential of these real estate assets. Simon’s Group, the largest American retail landlord, has been investing heavily in hotels, class A offices and residential redevelopments for a while, and works continue in several of their malls, including the King of Prussia in Philadelphia and Northgate Mall in Seattle.

Because malls are usually owned by one company that can quickly turn plans around, these redevelopments are happening faster than in the main street, where several landlords need to agree on major changes in the area. Many downtowns across the country still suffer from the rise of malls decades ago, a fate that these shopping giants refuse to accept.

As Americans realise they can do with a little less shopping and a little more experiences, the resilience of the malls is put to the test. It is true that many will succumb, but convenience and entertainment will always attract consumers, and mixed-use leases should continue to rise. A broad due diligence and focused strategy on the commercial strength of these assets are imperative to lead businesses in this delicate scenario.

Creativity, planning and investment will show if American malls will be able to break from outdated business models and turn the “retail apocalypse” into a “retail resurrection”.

To find out how onefourzero can use data to generate digital diligence reports that help you analyse the market and its potential risks, contact fleur@onefourzerogroup.com

 

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