1ST QUARTER
To survive in the digital age, malls will need to reinvent themselves. Here’ s how.
A storm of global trends are coming together at the same time to cause malls to change the role they play in people’ s lives. No longer are they primarily about shopping. Now, when consumers visit malls, they are looking for experiences that go well beyond traditional shopping.
The trends helping to create this change include changing demographics, such as an aging population and increased urbanization, which means more people living in smaller spaces and a greater need for public spaces in which to socialize and congregate. In this environment, malls offer a welcome watering hole, especially in cities where other public spaces are not safe. Sustainability concerns are causing some consumers to prefer mixed use developments where they can live, shop and work all within walking distance.
As these trends advance across the global stage, they are forcing mall operators to rethink how they conceive and operate their properties.
In the face of these considerable challenges, malls are seeking to stay relevant, drive growth and boost efficiency. We see successful players investing along three key fronts.
1. Differentiating the consumer offering, with a focus on experience and convenience.
Online shopping provides consumers with ultimate levels of convenience. Malls will never be able to compete with the endless product selection, price comparisons and always-on nature of online. Nor should they try. Instead, malls need to move in a different direction, away from commoditized shopping experiences and toward a broadened value proposition for consumers.
Innovative malls are incorporating value-added elements that attempt to recast the mall as the new downtown, including concerts, arts centers, spas, fitness clubs, and farmer’ s markets. These services provide a level of leisure and entertainment that can never be satisfied online.
An emphasis on fine dining and events is also helping to make malls the hub of the local community – a place to share quality time with friends and family, not just wolf down a meal at the food court.
On the tenant mix front, innovative malls are strategically rethinking the types of stores that consumers will respond to. Anchor tenants that drive traffic are still key, but we also see a new emphasis on a curated mix of smaller stores that add a sense of novelty to the mall offering. Additionally, some malls are making greater use of temporary, flexible spaces that can accommodate different stores over time. Pop up stores, showroom spaces and kiosks provide customers with a sense of the unexpected and give them a reason to treasure hunt.
Finally, malls are overcoming the commoditization problem by focusing on specific consumer segments and / or creating specific zones within the mall that allow consumers to find an area that caters to them. In the Dubai Mall, for instance,“ Fashion Avenue” is an area dedicated to luxury brands and services tailored to the upscale customer, including a separate outside entrance and parking area. This approach also represents a way for malls to ensure that customers don’ t get lost inside the ever increasing square footage of malls.
2. Transforming the mall experience by leveraging technology and multichannel strategies.
The digital transformation of retail is not all bad news for malls. On the contrary, it presents new opportunities for
malls to engage consumers throughout their decision journeys. There are three primary ways in which malls are leveraging technology:
First, they are extending their relationships with customers to before and after the mall visit. This is about engaging customers through compelling content and creating deeper bonds with them through social media and proprietary sites and apps, as well as loyalty programs. Social media can be used, for instance, to create buzz about new tenants or solicit ideas from consumers about ideas for new stores. One mall company has utilized segmented Facebook communication to speak to different communities, such as different geographies or interest groups or specific malls. Mall loyalty programs can provide the means for malls to establish a direct relationship with customers that goes beyond each visit to the mall, while allowing malls to collect precious information about customers.
Just like retailers, malls should reach out to their customers with customized offers, gift ideas and other targeted advertisements based on real time intelligence and location-based marketing. While malls face the challenge of not having direct access to shopper purchase data, this can be overcome by inducing shoppers to use their smartphone to scan purchase receipts in exchange for points that can be redeemed for concerts tickets, books, discount vouchers for
Feature participating merchants, free parking or invitations to events( e. g., a fashion show). Alternatively, technologies such as face recognition, location-based mobile ads, and beacons are already being successfully applied in order to identify and establish targeted contact with repeat customers. Such technologies are also valuable for gathering consumer behavioral data from which malls can glean useful insights.
Secondly, malls are using technology to transform mall usability as a means of improving customer satisfaction. There is ample opportunity for malls to decrease customer pain points, while simultaneously creating entirely new delight points. Technology, for instance,
can be used to address one of the biggest challenges shoppers face at the mall – finding parking. Sensors located in parking lots detect how many spots are available on each level and give visual indicators to drivers. Once within the mall, mobile apps can offer quick, easy guides to help shoppers find what they’ re looking for at today’ s increasingly large and multi-level malls.
Thirdly, malls are utilizing digital capabilities to take the shopping experience to the next level. It critical for malls to take a more active role in shaping the shopping experience, either by acting more like retailers or by partnering with them. Mall players are experimenting with a variety of different business models to make this happen, but there are no certain winners yet.
As the barriers between online and offline blur, some mall operators are venturing into online with a complete virtual mall offering.
3. Exploration of new formats and commercial real estate opportunities.
The most innovative malls today look nothing like their predecessors. Although location remains the key real estate consideration for malls, a differentiated design and structure is increasingly important. Open air malls go a long ways toward lending an atmosphere of a town center, especially when they incorporate mixed use real estate. Many of the malls being built in urban areas are open and fully integrated with the landscape. Incorporating environmental sustainability considerations, the mall is accessible by public transportation and features a rainwater harvesting system. Even malls that are enclosed are now incorporating more natural ambiance into their design, installing plants and trees, wood walls and floors, waterfalls, and lots of glass to let in natural lighting. Such elements help malls better blend in with their surroundings.
It is critical that malls be about much more than stores. We see the mix of tenant / public space moving from the current 70 / 30 to 60 / 40, or even 50 / 50. When this happens, these expanded public spaces will need to be planned and programed over the year much like an exhibition. They will be managed more like content and media, instead of real estate. Mixed used developments offer consumers an attractive, integrated community in which to live, work and shop. They also serve to generate additional traffic for the malls while maximizing returns on invested capital. Other commercial real estate opportunities that can add alternative revenue streams are hotels, office buildings and airports.
Implications for malls
Although these trends are expressing themselves to varying degrees in different markets around the world, we believe they are relevant globally and should be taken to heart no matter where mall companies operate. There are three strategic considerations that players should understand when figuring out how to best react.
1) Evolve the offering by defining a clear value proposition for both consumers and retailers, anchoring it on deep consumer insights and bullet-proof economics. To do this, mall players must first isolate and quantify the consumer touch points that are most responsible for driving satisfaction. Use these touch points to prioritize areas of investment and to design a cohesive customer experience program that will yield higher visit and / or spend rates, and ultimately greater consumer loyalty.
2) Increase productivity and efficiency of the current mall base through a strategic review of the tenant mix, taking into account consumer needs and retailer economics.
3) Focus on city clusters and regions that have distinctive opportunities for growth. This includes thinking purposefully about disciplined capex management and which formats are going to create the biggest impact, whether that’ s traditional, multiuse, neighborhood or outlet.
The world of retail is changing dramatically, but the mall still can have a central role in urban and suburban societies. To avoid becoming what one chief executive calls a“ historical anachronism – a sixty-year aberration that no longer meets the public’ s needs,” mall operators must expand their horizons of what a mall can be. They must envision themselves no longer as real estate brokers, but instead as customer-facing providers of shoppable entertainment.
www. mckinseyonmarketingandsales. com, 11 / 2014
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