If you haven’t seen this piece by Allison Arieff and you're in the mall business, you should certainly be taking a look. Many of the things we’ve been talking about for years are things that people are just now exploring. The key take away is that the business model of the big mall needs to change, both from a back-end and a front end.
I think that back in 2005, iTunes became the 7th or 8th largest music store in the United States. Think about that. They have no real estate, at least none dedicated specifically to iTunes, and carry no inventory. They don't have to pay for sales staff or worry about returns. And if you look at the typical Apple store, a great deal of its space is dedicated to social functions, not traditional retail functions. Now, if you're a large record store chain, this has got to be a huge challenge. You've got all of this real estate dedicated primarily of the inventory management of music and yet more and more people are buying their music online.
What's always interesting to me is that people in one industry can look at another and say "How can they not see that every thing's changed and they need to change" without looking internally at their own industry. We think that mall developers need to look at their business model in addition to the redesign on the physical space. Many work on a rent + a percentage of sales model, but will that still play in a world where people do more window shopping in the mall and more actual buying online? And, as we ask retail clients all the time, what happens to your retail space if you take away inventory management? Look what I said back in 2006:
So, if the retail space might become more of a showroom and if people don’t mind shopping and having their purchases drop shipped, then what’s the impact on the real estate itself? We see it becoming a much more vibrant and alive social space. A place for people to gather and share their experiences through the brand, rather then sharing their experiences of the brand. Look at the Apple store. Lots of people talking to one another. The theatres where you can learn together as a community. Even the Genius Bar. It’s much more of a social space.
So, what is the value of real estate for retailers today? Does a record store really need to exist as it's been for the past 40+ years? Or banks, grocery stores, fashion retailers? If, thanks to the internet, people are much more comfortable getting their purchases sent to them, rather then getting them right away, do we need that much space dedicated to merchandise? So, if we can do away with the inventory portion of most retail spaces today, what else would you do with the space? How could you make it a much more social environment, rather then being a retail environment? After all, this is exactly why places like Starbuck's or the Apple stores have boomed -- they created a social space, rather then a retail space.
Had a conversation recently with some friends a few weeks ago and we were talking about the economy and everything happening. A couple of us thought that if this was a really hot summer, people would be looking to places like malls to stay cool and keep their own a/c costs down. If I can walk around the local mall for a few hours on a weekend, I won't have to run my own a/c and that will save me money. We're already seeing people go to the movies more, it's a pretty good entertainment value these days.
Here's what Allison thought was the best entry:
Malls will not only generate sales, they will “grow food, create crafts, manufacture products, generate energy, and provide education.” As an antidote to time spent online, argue the CommArts folks, the mall becomes a social center, a “spectacle of hands-on demos, lectures, performances, classes, tastings, parties, and shows.” Further, the national sameness we now experience (Gap? Check. Victoria’s Secret? Check.) will morph into something more one-off, more local, more cause-oriented.
Utopic? Perhaps, but with dried-up financing, minimal consumer demand and the Chapter 11 filing last month by the second largest mall-operator in the country, it’s time to think differently. So bravo to ICSC for holding this competition in the first place. We’ve seen tremendous shopping innovation with online retailers specializing in uniqueness and craft like etsy, sustainable materials and business practices like Nau or customer service like Zappo’s; now it’s time for that innovation to hit the strip. And not just the Vegas one.
In fact, I’ve already seen something akin to Crossroads City implemented on a neighborhood scale. The Ainsworth Collective, a group of some 50 households in Portland, Oregon’s Cully neighborhood that came together out of a mutual interest in sustainability and community, have created a micro-economy within their few square blocks. They’ve published a directory of services provided by neighbors (from tax preparation to massage services to cat-sitting), encouraging local transactions. They’ve instituted tool-sharing, car-sharing, bulk food-purchasing and even own a farmer’s market that sells produce, baked goods and other items made by its members. There may always be mega-malls, but developers and architects would be remiss in not exploring grassroots solutions like this.
But, while people look at Starbuck's or the Apple stores and say "Yea, that's great for them, but it doesn't apply to me," they're missing a huge opportunity today. I think there's a coming trend to socialize the retail environment instead of just merchandising the real estate space. And the more we try to use the space for our purposes rather then our guests, the more they'll stay away...
Hobbs + Black Entry