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Contemplating the future of shopping malls

By Gary Schwartz

Samsung strikes a deal with the beleaguered Best Buy to subsidize its rent with a store-in-a-store initiative. Borders exits the mall and last-man-standing Barnes & Noble seems to become a living room knickknacks vendor with more book browsers than book buyers. Zappos Labs runs field research in malls and Facebook launches a commerce strategy – again.

Is a retail dust bowl about to blow through the mall nationally? Or is this a digital tempest in a tea cup?
We know that online commerce is booming, but it still accounts for a small slice of the United States’ mall business. Undeniably, this $200 billion digital business – per comScore – is expanding scope daily.

If there was ever a digital demarcator, it is the soap business.

When Unilever and Procter & Gamble, the market’s main consumer package goods companies, begin to sell soap on Amazon, and when Walmart begins to ramp up its online business, leveraging its 4,000 stories and 158 warehouses as an online distribution network, then mall property owners possibly need to rethink their role in bricks-and-mortar.

Inertia as strategy
Malls are entertainment destinations. Always have been. We go to the mall for a movie or latte just as we bundled the family into the Buick 60 years ago to go shopping. But if Best Buy and Barnes & Noble leave the mall, what is left to attract the consumer? Hours of gizmo browsing and cook-book thumbing gone.

Browse-verse-buy business has whittled way the margins of many stores, making Blockbuster and Gamestop digital road kill. It forced Target chief executive Gregg Steinhafel and Kathee Tesija, Target’s executive vice president of merchandising, to cry uncle on “showrooming” in a memo to its suppliers in 2012.

However, muscling your supplier’s prices down is a pyrrhic victory. Even with the volume sales of Target and Walmart, they know that they need to move some of their business into the cloud.

During Walmart’s August 2013 earnings call it announced that ecommerce sales rose by 30 percent in two trailing quarters. Walmart indicated its total online sales could pass $10 billion in fiscal year 2014. This is only two percent of the stores’ earning and only 12 percent of Amazon, whose sales totaled $61 billion in 2012. But it is a marked trend and a harbinger of the exodus of earns from the mall.

What incumbent stores presently have in their favor is inertia. The cloud and the mall are still not fluidly connected. Although each shopper is armed with a mobile computer that has the capability of scanning, sourcing and saving the consumer in every aisle, there are too many hurdles and much friction between the idea of digital buying and the products within arm’s reach.

The mandate of any red-blooded digital retailers is to eliminate this inertia.

No-click cloud checkout
Apple’s iTunes, Amazon and PayPal built their business on simplifying checkout: making sure that the act of buying does not get in the way of intent to buy.

One-click checkout, or combining stored customer credentials, with a simple password is the sole reason that these companies continue to grow their market share. Their UX team would tell you that every informational and graphic design is based on optimizing clicks to checkout. Each click makes a precipitous drop-off and abandoned shopping carts litter the Web.

But digital checkout demands trust and mindshare. Even online real estate barons such as Facebook have been unable to enter this market.

Although “social” and “commerce” seem natural allies, Facebook has not been able to deliver on its promise to leverage its millions of customers to shop cross-channel. The company launched Facebook Credits in 2009 and phased them out last year.

“F-commerce” experiments abound. Remember Facebook + Amazon + P&G partnering in 2010 to change the world. Unilever followed suit launching a storefront on Facebook for its Dove brand.

Retailers including J.C. Penney and Gamestop have attempted to monetize their Facebook community by opening stores inside the Facebook network. They shut their virtual doors after posting underwhelming results.

Apple and Amazon have proven that community plus one-click checkout works. These digital-wallet holders started their business explicitly to sell stuff. And they are poised to remove the inertia from online shopping and with it the last refuge of the mall owner.

Online shopping provides advantages with an endless aisle, allowing for access to more sizes and categories.

According to Nielsen, the average basket size is much larger for consumer package goods ($80 online to $30 offline) and beauty purchase ($30 online to $10 offline).

The question is that when the households put soap and diapers on their shopping list, will they log into Amazon to buy Dove Body Wash 24 Ounce Bottles (Pack of 4) and Pampers Sensitive Wipes 7x Box?

Baked beans and apple pie
The last refuge of the U.S. mall is maybe a can of baked beans and fresh produce. If the household shopper wants to grab a can for dinner tonight or smell the oranges and squeeze the melons before buying, then off to the store they will go. Grocery stores are big box convenience stores.

However, should mall owners that are grocery-anchored feel safe? Their clientele should come from a weekly shopping list.

Well, hold your Kraft peanut butter.

Traditional grocery retailers are faced with increased competition.

In March, Walmart opened grocery concept stores about a tenth of the size of their supercenters. With big box and online retailers entering the grocery space, specialty grocers capturing the “foodie culture” consumer and brands creating a direct relationship with the consumer, perhaps this is not a safe bet for mall owners.

Google Wallet, ISIS and other phone wallets promise to make in-store shopping more digitally fluid, but what is the digital wallet never makes it to the mall.

Online grocery shopping has grown fivefold over the past eight years to $25 billion. Tablets devices have made shopping more leisurely and couch commerce has accelerated.

With CPGs moving their diaper and detergent business into the mainstream online stores such as Amazon, the inertia may soon come from the home.

Poaching people
Since Tesco opened its virtual grocery store on the subway in Seoul, South Korea, two years ago, scan-and-shop-on-the-go signage has become more common. While it is still a media gimmick, it has the potential of becoming a way of luring the shopper online.

In every mall or transit hub in the United States, at least one brand has attempted to use the in-mall media to engage with the shopper and move them into their cloud store.

In CNET interviews with Amazon-owned Zappos Labs director Will Young confesses that his team sits around malls stalking shoppers. Their goal is to emulate these shoppers’ behavior online. Mr. Young is asking, “How can you make the digital experience feel like the in-store experience?”

WHETHER THEY succeed or not, there is no question that malls need to re-evaluate their passive media deals.

When a brand buys signage on an ad impression basis but uses this media to poach customers, then this signage perhaps should not be sold as an impression but as a “mini-storefront.”

Mall owners nationally are holding strategy sessions to evaluate how technology is affecting their business. These stakeholders need to re-evaluate their real estate assets and start to see media as leasable square footage.

Gary Schwartz is president/CEO of Impact Mobile, Toronto. Reach him at [email protected].