MALL OF THE FUTURE

by Peter Tonstad

McKinsey published a report entitled “The Future of the Shopping Mall” back in November 2014. The main topics covered in it were the focus on experiences and convenience, the use of technology and multichannel strategies, and tenant mix and formatting. At the time of that report and other similar market data sources, the foundation was being laid for a revised strategy for Placewise. We decided that we needed to invest heavily in the product in order to meet the longer-term expectations that shopping centers would become true omnichannel offerings.

Eight years later, Moody’s Analytics has now published a comprehensive white paper entitled “The Mall of the Future”. The main topics covered in it are omnichannel strategies, malls as e-commerce distribution channels, mixed-use malls, and evolving lease structures. It is just as inspiring as the 2014 report and emphasizes the opportunity for malls to support their tenants’ online sales by leveraging the mall’s local reach in their respective catchment areas and using mall inventory as the basis for deliveries, pickups, and returns generated by online sales. One quote from the new whitepaper that we particularly like is, “Mall operators will also need to keep retailers’ omnichannel strategies in mind. They will need to help provide the technical infrastructure for omnichannel sales and marketing and support distribution center-like use of space for more dynamic logistics.”

Between 2014 and 2022, there are other reports from globally recognized consultants and analysts, such as Kearney and Deloitte, all pointing to the same trends and outlook. The belief is that the physical store will play a key role in retail for the unforeseeable future. In 2021, online retail accounted for approximately 14% of total retail spending in Europe. Some forecasts predict that by 2050, the ratio between online and physical retail will be 50/50, while others say physical retail will still play the biggest role. Either way, all the reports that we have seen say that there is untapped potential and that the future resilience of shopping centers is heavily dependent on adding value to the online sales of their retail tenants.

The CEO of Masid Al Futtaim, Alain Bejjani, was quoted in an interview with Fast Company in April of this year as saying, “The success of futuristic malls will primarily depend on how well they meet customer expectations of omnichannel experiences. There will continue to be a physical presence, but there will be much greater use of technology.”

If we honestly evaluate visiting a shopping center today compared to 2014 or the beginning of the millennium, it is more or less the same. Yes, vacancies have been replaced by more services and entertainment, and all new developments usually include apartments and offices in addition to retail. However, the shopping experience still is not truly omnichannel. Individual retailers have great omnichannel success, but not because it is based on interaction with the shopping center. For the shopping center to be perceived as an omnichannel destination, it must be a true omnichannel offering, facilitated by the shopping center and offered to its tenants as a business proposition. It needs to be a coordinated experience across all retailers at the same location. Only then will it make sense as something different and interesting to consumers.

Two Sales Channels Supporting Each Other

As I have previously reported, Placewise has recently pioneered several initiatives and product developments that will enable shopping centers to become true omnichannel offerings, including product and inventory feed based on retailer integrations, cross-retailer shopping carts and payments, and cross-retailer delivery or pickup. All of the clients involved view these as long-term initiatives that will take several years to deliver significant business value. At the same time, we have encountered many shopping center owners who are taking a wait-and-see approach. As soon as someone else proves everything, they will jump on the bandwagon.

The evolution of shopping centers is not comparable to the case of Kodak, where the entire business was cannibalized by digital photography, or CDs and DVDs, which were then replaced by streaming services. This is about two sales channels supporting each other, and the ultimate experience is the combination of both. Therefore, compared to other industries, the shopping center industry is in a privileged position, where the goal is not about trying to avoid being outperformed but to evolve to meet the changing expectations of consumers. The downside of this privilege is that there is a lack of a sufficient sense of urgency – many players prefer to “wait and see”. Moreover, in some cases, the timeframe to prove the viability of a new business model is far too short. Big player Capitaland in APAC recently shut down its e-commerce offering for curated, limited-quantity products after less than a year because transaction volumes were lower than expected, and it took more effort than anticipated to get retailers on board. Nothing in digital can be proven within a year. I remember working in the media industry around the turn of the millennium. The number of ideas and digital projects was insane, but most of them took at least 15 years to prove themselves, and for some, the vote is still out after 20 years. On average, however, media companies are now very well positioned in the digital landscape because they understand that their longer-term relevance depends on going digital as well.

I hope and believe that the shopping center industry in general will seize the moment and make omnichannel a real strategic priority, with a sense of urgency. Such evolution cannot be solely undertaken by the most innovative shopping center owners, for others to replicate later because then 10-20 years of experience and actual development will be lost. Happy evolution!