In the past decade much has changed in consumer sales. Consumers were initially slow to adopt online shopping. At first likely due to the cost of shipping, return fees, not being able to try the item before buying, and the delay in satisfaction of having the product in hand (Liu et al., 2011). To be fair, consumers have utilized remote buying for some time through mail in catalogs selling items one simply could not easily buy locally or offering a significant discount making the delay and possibility of not being satisfied with the product worth the risk (McCorkle, 1990; Vijayasarathy & Jones, 2000). However, when online shopping started to become a reality the shopping experience was not much different from a catalog (Cho, 2004). Unless the item was difficult to buy in person or the discount was significant the online shopping experience was not to the buyer’s experience.
In the past decade, the online shopping experience has been revolutionized with, at first no sales tax, free to low cost or membership included shipping, at first same week, to three day, to two day included shipping, now to shipping in as little as two hours, free returns, better pricing, customer reviews and so on. The online shopping experience other than being able to hold the item before buying and being able to have the item immediately after buying has surpassed the instore buying experience. The competition of online buying has significantly harmed traditional brick and mortar retail (with a few exceptions) causing many stores to carry limited inventory, less options, with fewer staff and so on leading to a continued decrease is consumer experience and decrease in traditional brick and mortar sales.
Despite online retailers making significant headway, the reality is the consumer will always need something now or need something fresh for example to cook for dinner. However, the question is will traditional brick and mortar retail be able to stay open for consumer’s immediate needs? These were questions researchers and investors have been considering well before COVID-19 was allowed to for all intents and purposes close our society and ravaged our economy. During the height of COVID-19 in some states retailers were forced closed if they did not offer essential services or products and those who did were instructed not to sell non-essential products to customers who were already in the store. What happened to society and our economy happened, we will likely be debating the validity of what we did during COVID-19 for decades to come but what happened took a toll.
As many were discussing and considering the future of the traditional shopping mall one must wonder was COVID-19 the final nail in the proverbial coffin? Every shopping mall I visited prior to COVID-19 was at least 40% vacant with major retail chains and brands coming and going what seemed to be monthly. Prior to COVID-19 all but one major bookstore, fitness store, and two large box retail stores seemed to be the only existent and stable retailers. The boom or growth in physical retail was mostly seen in consumables such as coffee themed fast food and burger restaurants. Both of these industries saw at least one major hit prior to COVID-19 due to rapid expansion beyond the market’s ability to support and the 2008 recession where consumers did not have funds for non-essentials.
The Mall
With the traditional shopping malls around the USA experiencing 40% vacancy, less visitors due to the increased ease and cost savings of online shopping, and providing less attractions to draw customers (no arcades, less coffee shops, less dining, more stores closing every month or week), high rent, and now with COVID-19 closing or at least limiting malls are malls dead?
Most, probably do not know the average mall in the USA charges $2,000 to $4,000 a month for an ATM to sit at the mall. The average ATM is about 4 to 6 square feet. The average small retail store is paying between $10,000 and $20,000 a month with the large not department stores paying up to $50,000 a month. With these levels of rent, no wonder mall owners are so wealthy.
Think about a shoe store. Assuming the store is only paying $10,000 a month in rent the store needs to profit $10,000 off of its shoe sales before employee and operational costs just to make rent. Let’s take some rough numbers and assume the best possible for the shoe store. Assuming the average shoe in the store retails for $100 and the retail store profits $50 per pair sold the shoe store needs to sell 200 pairs of shoes just to make rent. To be honest, the shoe store does not make 50% profit off name brand shoes. They might have in the 80s and 90s but this is not the case in the last decade. However, with these numbers a shoe store who happens to have a strong customer flow and sells 10 to 20 pairs of shoes a day could do well. However, this is often not the case since online retail has become easy and convenient. Once a buyer knows what brand, size, and type of shoe he or she likes the buyer can order future pairs online often for a lower cost and no hassle returns if they do not fit. Now to be fair to anyone who owns or manages a shoe store, in a traditional mall with the high rent discussed earlier the average shoe store probably needs to sell around 1,000 shoes a month to pay rent and pay the employees slightly more than minimum wage.
We could go through example of other retail stores in shopping malls but with one main exception they would all have the same results. The store needs to sell a large number of units to barely make it which requires significant capital to be tied up in inventory and so on. The one main exception is electronics. This is not to say all electronic stores can afford the high rent of malls but the demand for electronics and the profit margins make it more tolerable for electronic retailers to be successful with high rents. As I have experienced, many malls rely on the traffic brought in by the electronic stores and often times discount rent as the mall cannot afford to have the store move to another mall or shopping center and lose the customer traffic. Ironically, malls will discount rent for the one retailer who does not typically need the discount while watching the retailers who do need a discount go out of business and there be another vacant unit.
The Fate of Malls
With traditional shopping malls around the USA experiencing high levels of vacancy, less visitors due to online shopping, providing less attractions to draw customers, and now with COVID-19 are malls dead?
The answer is yes and no. Yes, malls as they are, are dead. Specifically, if a mall does not reinvent itself, continues on the path of the old mall business strategy that mall will become more and more vacant and as a result have less and less visitors which will lead to more vacancy making it inevitable to either making serious changes or being completely vacant. No, malls who open their minds to a new way and reinvent themselves not only could survive COVID-19 and all the previous market conditions but could excel and once again be a place of great commerce. The days of malls charging high rent, doing little to nothing to draw consumers in, and sticking it to the small retailers whenever possible are limited as there are few to no retailers lined up to take the previous’ place.
Strategies for Success
What does reinvent itself mean for a mall? Here is a list of concepts every mall owner and manager should consider and everyone who owns or manages a store within a mall should consider proposing to improve the retailer’s arrangement with the mall.
- Stop charging high flat rent to any and every retailer who is willing to take a chance opening or moving their business into the mall. Specifically, consider what Blockbuster did with Hollywood. Instead of paying $99 for a VHS and then a DVD to be able to rent it to consumers Blockbuster negotiated what is called Revshare short for revenue share. Basically, Blockbuster negotiated to pay around $5 per VHS/DVD but to pay the movie studio a percentage of the rental. This led to Blockbuster stores being able to have 100 copies of the latest movie quickly becoming the studio’s largest source of revenue. Consider charging for a typical retail store no rent and ask for 1-3% of the stores resale or charging $2,000/m rent plus 0.1%-1% of the store’s resale. This ensures the retailer will not go out of business due to mall rent, incentivizes the mall to attract consumers, and benefits the mall for each retail space’s success. This makes the retailer and the mall partners in achieving success.
- Consider what the mall is doing to attract consumers. For example, what retailers does the mall have and what retailers is the mall attracting. I would suggest being more than a high fashion clothing mall. If you want to know why, simply look at the Simi Valley, CA mall. When it opened it was packed for three weeks then has been mostly empty ever since. Ensure the mall has the common person retailers. High end and regular clothing options. Ensure the mall has plenty of food options which are unique. For example, have a couple nicer restaurants, middle of the road restaurants, and quick cheap food options. The average sized mall does not need three burger joints two steak houses and three soft pretzel stands. The average mall needs one and sometimes two of an option. Do not be afraid to put a common brand such as McDonalds in your mall. Having McDonalds or another fast-food chain does not diminish the quality of the mall’s brand. For example, the Thousand Oaks, CA mall during a remodel decided McDonalds was not good enough for the mall’s new branding and raised the rent so the franchise owner was forced to close. One, McDonalds was always busy and was doing financially very well. Two, it was not diminishing the brand of the mall. Three, when the holiday season came around two months later there was no where for many to eat with the average food service in the mall having well over an hour wait. McDonalds was uniquely equipped to make food fast and keep up with the holiday rush. Shoppers, especially those with children who tend to have a high spend rate were forced to stop shopping and leave the mall to feed their children.
Think about what attracts customers. Some examples which I have seen keep mails from being empty is bringing in non-retailers such as dance or martial arts studios. Bring in organizations such as a studio who won’t pay much in Revshare rent but will attract parents who while their child is in class might shop the mall, and who will likely be in need of food for their child quickly after their child’s class ends making that quick stop to the food court so easy. Consider if 25% of the parents go shopping and 25% of the parents use a food service in the mall that is more customers along with the space the studio is taking up not being empty and no longer negatively reflecting on the mall’s brand.
A short list of possible unconventional organizations to seek to add to a mall. Dance studios, martial arts studios, fitness studios, art studios, boy and or girl scouts, anything child/childcare related, homeschool classroom/organization, an office rental/share agency, pharmacy, college satellite, mailbox store, and offer a low-cost conference room for small business to rent (low cost means practically free – $10 to $20/h). Look for business in the area who typically have customers visiting weekly or more often such as a mailbox store. - This probably should be first, but if you own or manage a mall get past yourself. Simply said, malls have not been for a while and definitely are no longer today in control or in other words shopping malls are no longer the man. Humble yourself and your business plan to be open to new ideas and creative ideas to fill your retail space. Why would a business plan call for filling maybe 60% of a mall when one could lower rent, fill the mall 100%, enjoy Revshare, and provide more offerings, which attracts more consumers, which leads to more sales, leading to happier and more successful retailers, which leads to a happy successful mall. Outside of pride I have not been able to find an answer to the question of why have malls refused to do what makes sense and what is best for themselves and their retailers. Blockbuster did not go out of business because of Netflix, Netflix was part of it, but Blockbuster went out of business due to years of poor management decisions, failure to modernize, and when Blockbuster did modernize and was poised for its second success there was so much debt from the years of poor decisions it was impossible for Blockbuster to move forward. Learn from Blockbuster’s failure and change the culture of poor shortsighted decisions and learn from the company’s initial success and implement Revshare to keep and attract retailers.
Conclusion
In conclusion, are malls dead. As we know them, yes malls are dead. Unfortunately, countless examples of struggling malls around the USA prior to COVID-19 demonstrate most malls are incapable of thinking outside the box, humbling their business plan and doing what makes sense for long term success. As such, those malls who do not make significant changes will soon be empty and are likely already over 50% empty. Malls who consider themselves partners with their retailers seek mutual success, looking at new ideas and new ways to attract consumers could make the turnout of COVID-19 possibly to bigger and better days then the 80s and 90s. Now we watch and wait to see which malls try something new and which ones continue to decline.
References
Cho, J. (2004). Likelihood to abort an online transaction: influences from cognitive evaluations, attitudes, and behavioral variables. Information & Management, 41(7), 827-838.
Liu, C., Forsythe, S., & Black, W. C. (2011). Beyond adoption: sustaining online shopping. The International Review of Retail, Distribution and Consumer Research, 21(1), 71-93.
McCorkle, D. E. (1990). The role of perceived risk in mail order catalog shopping. Journal of Direct Marketing, 4(4), 26-35.
Vijayasarathy, L. R., & Jones, J. M. (2000). Print and Internet catalog shopping: assessing attitudes and intentions. Internet Research.