Traditional Shopping Mall Under Siege

The traditional shopping mall is under siege due to pressure from E-commerce and the changing needs and wants of the “millennials,” the new generation of shoppers. These are the findings of authors Jose B. Alvarez and Rajiv Lal of a new book, “Retail Revolution: Will Your Brick-and-Mortar Store Survive?”

Lal is the Stanley Roth, Sr. Professor of Retailing at Harvard Business School, (HBS), and Alvarez is a senior lecturer in the Marketing unit at HBS.  Their discussion entitled “Where Did My Shopping Mall Go?” appears in the March 17, 2015, edition of Harvard Business School’s Working Knowledge, a (free) on-line weekly newsletter.  Author of the article and asker of the questions is Sean Silverthorne, editor-in-chief of Working Knowledge.

In asking what is happening to the shopping mall, Silverthorne points out researcher Green Street Advisors finding that more than 20 enclosed malls have been shut down over the last few years, and another 60 are on the endangered list.

The E-commerce Effect

“E-commerce has significant implications for the current conception of the mall,” according to Alvarez. “We are seeing that traffic is down, so cross selling and upselling are down, impulse buying is down, therefore basket size is down —so everybody in the mall is affected by traffic being down.

“If you have two or three major traffic-driving tenants in trouble,” Alvarez continued, “this affects the entire mall.”  He says that this creates a domino effect within the entire community affecting things like tax base, employment and blight.

“For the longest time nobody thought malls would be seriously hurt by

E-commerce but now we have enough evidence to believe that the tsunami is actually coming,” he said. “If you are not careful about thinking through the implications, you will be caught by surprise in many ways.”

The Rise of the Millennials

Combining with the E-commerce phenomenon is the rise of the millennials, also known as GenYers.  Members of this generation are largely the children of the Baby Boomers and will represent 26.9% of the U.S. population by 2020, according the U.S. Census data.  The Boomers (born between 1946 and 1964) will be 22.6% of the population by 2020; the Generation X cohort (born between 1965 and 1980) will represent 18.2% by 2020 and coming up is the Gen Z/iGen, those both after 2001, who will be 25.3% of the U.S. population by 2020.

The millennials are the first generation to be born with computers in virtually every household.  They buy online and they can compare price and quality of shopping goods online as well. These factors carry enormous implications for retailers in shopping malls, according to Lal and Alvarez.

Retail Stores as Showrooms

“Over time you might get some very interesting things happening,” says Alvarez.  “For example in electronics, manufacturers need to have Best Buy as a partner. If you are investing a billion dollars on the next Galaxy launch at Samsung, you don’t want your R&D to just become a line description on Amazon, maybe fifth or sixth on the list.

“You want people to touch your product and actually get the brand experience,” he adds. “You could get to a point where stores like Best Buy become just showrooms and fulfillment is done by Amazon because they are much more efficient at it. I could envision a time when some of these retailers become sales arms and showrooms for the brands that really need them to sell their goods.”

Lal adds, “You could really reimagine a story where there would be manufacturers, showrooms, and fulfillment—Amazon. There would be no transactions in the store and the showrooms would get paid by the manufacturers, by the brands. However, retail then becomes a real estate play, as is true in Japanese department stores.”

The mall that survives will have to cater to the needs and wants of the new customer, both writers maintain.

“Some you see succeeding are experience-based malls, ones that have restaurants, movie theaters and other sources of entertainment or services. The other place where you are seeing malls thrive is at the high end. The luxury malls, what the industry calls A-class malls, are doing very, very well. It’s the B- and C-class malls that are in trouble. These malls are targeting the income-constrained middle- to lower-middle class consumers, and that’s really where the problem lies” according to Alvarez.