The recent closures of some of retails largest department stores – such as Aéropostale, Wet Seal, Pacific Sunwear, and American Apparel, has led many investors to shy away from mall investing.
Even highly successful stores like Neiman Marcus, Saks Fifth Avenue, and Nordstrom are suffering.
Many in the industry complain that e-commerce has stolen retail customers (now accustomed to shopping online) and that numerous brick-and-mortar stores have now jumped online in order to “win back” sales from giants like Amazon.
The irony is that e-commerce sales accounted for less than 8% of the total retail sales in Q3 of 2016. And while numerous malls lie abandoned throughout the country, some malls, such as King of Prussia outside of Philadelphia, the New York outlet mall Woodbury Common, and the ritzy Forum Shops at Caesars Palace in Las Vegas, are doing exceptionally well.
Instead of sporting entire floors closed due to bankruptcy, these malls are bustling with scores of customers. It’s clear they are there not just to buy, but to enjoy the experience of shopping in these one-of-a-kind retail centers.
The demand for shopping center investments continues to grow as employment and consumption increase. Changing demographics (such as an aging population and increased urbanization) have led to more people living in smaller spaces. With this increase in urbanization, malls offer a welcome space to socialize and get together.
Contrary to popular opinion, with the right strategy, retail centers can go beyond surviving to thriving.
Here are some of the strategies successful owners are using to drive growth:
Smaller And More Cost-Efficient Mall Spaces
Investors have begun to rethink how they conceive and operate their properties, which has caused traditional big box platforms to give way to smaller, more cost-efficient spaces.
Owners have realized that providing a unique experience is the one thing that online retailers can’t provide as easily. Instead of cookie-cutter department stores and predictable spaces, some retail centers have become the hub of the community with smaller service-oriented stores and specialty restaurants as anchor tenants.
They’re betting that consumers will flock to be a part of an experience that only a physical place can provide. Statistically, it makes good sense as the longer a prospect stays in a place, the more loyal they feel, and the more likely they are to buy. Bookstores understood this years ago, offering coffee, comfortable seating, and the opportunity to browse books to your heart’s content.
To foster a sense of community, investors have begun moving away from large warehouse spaces, which are typically 800,000 square feet, to spaces around 350,000 square feet. As the online world continues to expand and emphasize the ability to connect with anyone at any time, these spaces, often referred to as “lifestyle centers” attempt to recreate a sense of personal space and connection.
Consumers want a one-stop shopping center that can’t be found online, and so owners have begun reinventing themselves by offering specialty cafes, wine bars, yoga classes, book signings, bazaars, showroom spaces, kiosks, and pop-up workshops.
Leveraging Technology And Multi-Channel Strategies
Savvy investors have taken a page from online retailers’ books and begun to invest heavily in technology and multi-channel strategies.
By examining and documenting the customer decision journey they have discovered three main ways to leverage technology for faster growth and more sales.
Creating a deeper bond with the customer
Like many online retailers, mall owners have begun to understand the importance of creating a deeper relationship with their customers. Not so long ago the only interaction a shopping mall had with its customers outside of the mall was a colorful flyer with several coupons.
Nowadays, retailers have begun extending the customer experience to include before and after customers visit the mall, usually through social media, loyalty programs, and proprietary sites and apps.
Whether it’s inviting tenants to post selfies in their newly-bought outfits, creating emotional store experiences that illustrate how customers use their products or using Facebook to target specific interest groups or customer segments, all of these methods aim to allow the mall to create a valuable relationship with customers.
Other owners have gone even further by using targeted marketing such as customized offers and gift ideas, customized through real-time intelligence and location-based marketing. Malls incentivize customers’ participation – and gather critical data – by encouraging customers to exchange points for various products or events.
Using technology to increase customer satisfaction
By reducing the pain points that discourage customers from shopping at the mall, investors have been able to increase foot traffic and as a result, sales. For example, apps let customers know how many parking spots are available, and where. They can also help shoppers navigate the mall, making it easier for them to find the store or product they want.
Elevating the shopping experience through tech
Although the jury is still out, some owners have begun blurring the line between offline and online by introducing certain features common to e-commerce.
For example, many stores have already graduated to allowing customers to reserve or purchase a product online. Upon arrival to the store, the product awaits the customer by specialized counters, where they can pay for the product (if they haven’t already) and be out of the store in just a few minutes.
Other mall operators are encouraging customers to browse their products online, order movie tickets, or pre-order restaurant meals. Since 60% of the 1.1 million people who visit malls annually use a mobile device, investors are hopeful they will be able to improve the mall experience for shoppers.
Moving From Pure Commercial Space To Mixed-Use Developments
Although many mall operators are rushing to modernize centers and stay ahead of the trends, others are hopping onto to the urbanization trend and moving toward mixed-use developments.
In the past, mixed-use developments stood at a staid 70/30 in terms of tenant public space. Presently the mix of tenants and public space is edging further to a surprising 50/50 split in an attempt to give more retirees and millennials an alternative community where they can live, work, and shop.
Baby boomers, in particular, are flocking to mixed-use developments seeking a more social environment. In some areas, they’ve even managed to price millennials out of the market altogether.
Along with these three solutions, there are other steps investors can take to improve shopping center performance:
- Aggressively keep track of tenant performance and remove non-performers when necessary
- Consider, not only which areas are primed for growth (strong employment and increasing retail rates), but also which format (mixed-use, neighborhood outlet, lifestyle mall) is most likely to succeed
- Be open to change and to figuring out what sells
Perhaps most importantly, consider what kind of customer experience the mall you’re considering or already own is providing, and whether or not it is a unique one.
If you can see how a particular property is able to offer a better experience or can conceive of a way to craft a better experience than it’s worth it to consider the property as a potential investment.
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