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HOW ARE MALL OWNERS ADAPTING TO OMNICHANNEL?

The Definitive Guide to Omnichannel Real Estate

The U.S. shopping mall has been the subject of negative press over the past few years, with much of it pointing to issues of oversupply, outdated structures and diminishing consumer demand. The growth of online retail has added to the mall’s struggles, as many traditional mall brands consolidate store portfolios and drive up vacancy at shopping centers

While some argue the mall is “dead,” there is substantial evidence to the contrary and that the right investments in key mall properties can help the mall adjust to and thrive in an omnichannel world. 

The mall problem: a merchandise mismatch

On average, department stores occupy nearly 50% of the gross leasable area (GLA) in U.S. shopping malls, with apparel, accessories and shoes occupying another 29% (or 57% of total in-line space). As shown in Figure 1, these are two of the slowest-growing categories in retail today, contrasting with higher-growth categories like restaurants, home furnishings, and health & beauty. Many of these slow-growth categories for malls have high rates of e-commerce penetration. In short, the traditional mall model that was developed nearly 70 years ago is heavily dependent on categories that are no longer meeting today’s consumer demands.

Figure 1: The disconnect between merchandise mix and sales growth—distribution of mall GLA vs. national sales growth for key retail categories

Source: CBRE Research, U.S. Census Bureau, ICSC, August 2017.

Adapting the mall to omnichannel 

Faced with an outdated tenant-mix model, many mall owners are proactively adapting properties to generate growth in an omnichannel retailing context.

Diversification of retail mix

Moving the mall tenant mix away from its over-reliance on the low-growth, high e-commerce categories outlined above is pivotal. Proactive mall owners are seeking higher growth categories that focus on experience like food & beverage, entertainment and services. These categories are less vulnerable to online penetration and generate the foot traffic that many traditional mall retailers have lost to the internet. 

Redevelopment and mixed use

While some owners look to diversify their retail mix, many are also looking outside of retail to achieve growth by adding other uses like office, hotel and residential space. Simon Property Group is redeveloping its Northgate Mall in Seattle into a transit-oriented development complete with multifamily units, offices and retail. With the planned arrival of light-rail service in 2021, Northgate is on the verge of a massive redevelopment opportunity. Preliminary site plans filed with the city of Seattle look more like a town center, complete with a central green, than a traditional enclosed mall. With colocation of office and retail components, shops and restaurants will benefit from a stable daytime population of workers. An office component often is a talent attractor and retainer, as the convenience factor and live-work-play aspect of the environment appeals to residents and employees alike.

Creating distinct experiences

To compete with online retail growth, mall owners must leverage the competitive advantage of brick-and-mortar experience. Many mall owners are moving away from the traditional copy-and-paste mall model by creating memorable and unique destinations that attract both tenants and shoppers. Omnichannel customers are still very much interested in physical retail experiences, but their expectations are higher than ever before for new and interesting experiences. Enterprising mall owners have taken many different approaches to creating these consumer-friendly experiences, including investment in creative design, events and common spaces. Some have focused on new tenant strategies like pop-ups [link to pop-up piece] that create a buzz and element of surprise to draw in traffic.

A focus on convenience

Convenience is often cited as the primary reason consumers opt to shop online. The ease and speed of online shopping has raised consumer expectations for how convenient shopping should be, and they carry these expectations with them into the physical store. Landlords must seek to create as convenient and comfortable a shopping experience as possible to attract and retain foot traffic, focusing on everything from convenient parking, digital way-finding and customer service. Many high-end malls are also offering concierge services that can provide things like dry cleaning and pet-sitting. Though the strategy may vary between properties, mall owners must drive convenience elements at their centers to meet the new demands of the omnichannel customer.

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