Last year, in a previous Great Debate, I proposed that online sales within 10 years would devastate the balance of brick and mortar retail, citing the huge increase in online sales during the 2011 holiday season as a catalyst for continuing growth. The holiday shopping season of 2012 proved to be even more of a watershed event than 2011. A report released by ComScore at the end of December last year said that holiday shoppers spent nearly $38.7 billion online between November 1 and December 21 of 2012, a 16 percent increase over the same time period one year ago. Not surprisingly, all of this is happening during a very fragile economy, because shoppers are much more easily able to find deals online than in brick and mortar, as well as take advantage of free shipping, thus eliminating the crowding and the hassle of dealing with large retail establishments. And what is more of a hassle than going to a modern shopping mall, which are located in extremely dense urban and suburban areas of the country, where there are also increasingly stressed and overworked Americans who are overextended on hours trying to make ends meet and to care for their families? Why should they take up their valuable time sitting in traffic to get to the malls and to shop, when they could simply be doing it from the comfort of their own homes, or during lunch breaks on their own smartphones and tablet devices? An entire website has now been devoted to"Dead Malls", ones which started out losing major anchor department stores, and then primary retail spaces until even the secondary stores could not survive on their own. Recent figures indicate that retail space in over 200 shopping malls across the United States are suffering 35 percent vacancy rates or higher. Not surprisingly, the largest retailers in the country are also the ones with the largest amount of mall exposure as well, and are seeing their sales decline significantly as a result of this overall slowdown in mall shopping. What's killing the malls? It's a combination of a weak economy, the increasing consumer preference for shopping online, and the high cost to retailers of having to rent retail space in a large shopping mall with ever declining foot traffic. This is a trend that I personally don't see reversing anytime soon.
My wife and I shop in-person for durable goods about 20 percent of the time. Much of the types of things that we purchase online include consumer electronics, small appliances, specialty clothing as well as large items such as home furnishings and cooking supplies (spices & seasonings as well as kitchen items).
There is the obvious food shopping as well as buying very personalized items such as clothing and shoes, which I feel still for the most part requires an initial in-store experience. I would also add any other business that requires hands-on consultation, such as a hardware store (Home Depot, Lowes) where finding a particular part or item needs the assistance of an employee. However, this is changing more and more, as once a particular style or brand of product is tried on, a higher of level of confidence in the brand will allow for successive purchases of the product online. For example, I may try on a certain style and brand of shirt on at a Big & Tall store in person, but if I want to buy more colors of that same item, we'll go through that company's online portal instead. The same could be said for shoes. I also see a future where confidence in online retail return policies are so strong and have such good customer service overall that in-store initial visits to have that warm and fuzzy feeling with a product purchase will not be necessary for the majority of durable good purchases. Certainly, Amazon has been able to build up their business this way.
Twenty years ago, the only way you could find certain types of stores were at malls. Malls had the necessary foot traffic for store specialization and it was the only way that most department stores could continue to thrive, when many of them moved away from a free-standing store model in the 1970s and became "anchors" in malls instead. Additionally, consolidation of the department store industry during that time period substantially reduced the real estate footprint of these companies. e-Commerce has hurt the shopping mall because you no longer need to go to a mall to get specialized goods.
The challenges of suburban sprawl, worsening automotive traffic, rising fuel prices and the increased difficulty of time management in modern families (many of which now need to be dual-income to make ends meet, let alone the single parent families that have to struggle with the same problems) have made going to the mall a planned activity which nobody has as much time for anymore. It is much easier from the comfort of your own desk or even from your smartphone or tablet to type out a search phrase and click "buy" than have to undergo a mall excursion. There are still people who go to the mall, however. In many cases, this is not so much as a shopping trip with a planned purchase objective but an entertainment activity, which could include going to a movie (another industry which is in extreme danger from online activity) and a meal and to "Window Shop" for goods that may end up being purchased online. Malls also have been traditionally popular areas for socialization and gathering for the younger generation, but the status of the mall as primary social outlet outside the school is changing given the downturn in the economy.
Small businesses are already taking advantage of this shift in buying behavior because they have the personalization and the specialization to compete with the larger companies in areas in which those larger firms are weaker or cannot stock specialized items that aren't volume sellers.
However, many of these smaller businesses are able to do this by having both a physical retail presence and also a strong online presence, and in many cases can situate themselves in less desirable and less expensive retail store space because of their area of specialization and can bolster their sales with online orders.
If we're talking about big box retailers like Macy's, Sears, Wal-Mart, Target and Best Buy, I think that there will always be a need in certain geographical areas depending on actual population density for physical retail presence.
However, that being said, I am sure all of these large companies are strategically re-evaluating their real estate footprint and determining whether or not it makes sense to service an area with multiple stores or just simply one or two, and what sort of inventory makes sense to keep in a store versus sell in their online stores for home delivery or in-store pickup.
Some of these large companies may eliminate a large amount of retail brick and mortar infrastructure, much of it in malls. Certainly if you look at certain brands from a historical perspective like Sears Roebuck & Co, the company started out doing business and did so successfully for decades as primarily mail-order. It would not surprise me to see a company like Sears return to its roots within the next several years. I think the key is to have very good telephone and email support and have a quick response time, and for the customer to know that they can reach a human being to answer their questions or resolve their issues.
With all of these changes occuring in retail, the mall as it exists today will have to transform into something else completely in order to survive. The "stores" will have to become more like showrooms for their online presences and less oriented towards keeping inventory and obviously they will need to be price competitive with the purely online stores. There will need to be more specialization in the retail outlets and also more entertainment venues, and the parking and logistics of moving about the malls themselves needs to be dealt with better so that a mall visit doesn't immediately become a multi-hour time sink. Additionally, as more people start to work flexible hours instead of the traditional 9 to 5 eight hour day, staffing and hours of operation may need to be adjusted.
The same e-commerce technology that is destroying the mall could help keep it alive, however. Just as Amazon has its own app for searching for desired goods, the local shopping mall may need an app that can federate the data from all of the retail stores and present a list of goods that can be bought at the mall that fit the search criterion. But at the same time, if the prices of these goods are not competitive with what exists online, there will be be few takers. So malls will have to offer things that cannot be purchased online, such as exclusive items in the stores as well as magnet entertainment and dining venues.
Mobile technology is also having a huge impact on brick and mortar retail, and the front lines where much of this is happening is at the mall. Amazon recently reported that roughly eight percent of their total sales are being generated by mobile devices, and I expect this trend to continue upwards. You can also expect that shoppers will be increasingly using search and barcode scanning applications on their smartphones when they shop in brick and mortar and at the mall to do spot price checks on items and determine whether or not the product can be better purchased elsewhere. I myself am guilty of doing this every time I go to a brick and mortar store and are considering a purchase.
There is also the issue of e-commerce having clear advantages in their use of social networking technology and their use of customer loyalty programs over the mall and other forms of brick and mortar.
Malls as well as stores that have mall retail locations may be able to use the same outreach techniques that e-commerce based stores use to retain customer loyalty, but that will have to be combined with the same kind of loyalty and rewards programs as well, something that they may not be equipped to do as individual stores.
As alliances of stores within malls or perhaps as affiliated mall management companies, such outreach techniques might be possible, although this may be difficult to engineer.
So what kind of stores will survive the culling of the Mall?
Automobile dealerships, while requiring less locations than before due to heavy online presence of the car manufacturers, will still need showroom space. Dining and Food stores will still be needed even if retail shifts most of its activity to online purchases. Furniture and large appliance stores are probably also safe, as are home improvement stores such as Home Depot and Lowes. And as I mentioned before, any business that offers highly specialized products will continue to thrive provided that they maintain a balance between retail and e-commerce operations.
Still, there is a sickness in brick and mortar retail, and we need to understand what is causing it. The economy as a whole and scarcity of disposable income is a contributor, but the economy also has side effects, such as causing people to work more hours and seek additional avenues of income. It is also breaking up families that now have to face single parenting scenarios which make a planned mall excursion during normal business hours as well as on the nights and weekends that much more difficult. Fuel prices are also making people think twice about getting in the car and going to the Mall.
All of these will increase retail vacancies and make e-commerce that much more attractive an alternative to traditional brick and mortar shopping. Despite my largely telecommuter lifestyle, I still love to get out of the house. But my time has value, as it does to many people.
Shopping is a necessity, but it is not necessarily an enjoyable activity at all times. That we all have less time to spend on tasks outside our revenue generation responsibilities and spend whatever we have left with our families (and our diversions) has no doubt impacted the bottom line of the shopping mall.
Will the Shopping Mall become extinct as e-commerce becomes the more dominant form of retail? Talk Back and Let Me Know.