Has the coronavirus sounded the closing bell for shopping malls?

Huge shopping markets like the Grand Bazaar in Istanbul were around as early as 1455. Some of the Middle Eastern Souks have been in existence even longer.

A Slice of Americana

By comparison, we in North American are relative newcomers to the shopping mall concept. Our malls started popping up in the suburbs in the late 1950s, most of them seemingly with a similar design and shopper experience formula: Build anchor stores, maybe make one of them a movie theater, connect them with rows of specialty shops, and drop a fast-food court somewhere in the middle.

Malls quickly evolved into an important anchor in our communities, a social gathering place for young people, filled with the latest fashions, entertainment, and friends. They were “cool” destinations for teens to hang out and pretend they were older than they were, and maybe even a starting point for work with a minimum wage job.

Ah yes, I remember those days well!

When Competition Began

Retail is a tricky business. The first shot across the bow came from standalone, big-box stores and discount mass merchandisers.

1962 was a big year for retail in the U.S. with the launch of the very first K-Mart, Walmart, and Target stores. While their focus was primarily on competing with the likes of Sears, Macy’s, JCPenny, and Montgomery Wards, it also began to affect mall traffic.

Later a variety of competitors chipped away at the mall business model even more with the likes of Costco, Kohl’s, Nordstroms, Staples, and Best Buy. With every new store opening, consumers were drawn to the newer brighter shinier objects.

Later came the Dollar Stores wave with and discounters like Big Lots, Tuesday Morning, and At Home.

Then, in the past decade, online shopping dealt a massive blow to mall retailers and, by extension, the malls themselves. It’s not surprising that mall visits declined by 50% between 2010-2013, with further declines reported each successive year.

The Outlook is Mixed

Are indoor malls done for? At the very least, when we add COVID-19 realities into the mix, it almost certainly is the end of malls as we know them today.

However, in the past decade we’ve seen some micro-innovations in malls that could provide a clue about larger trends in the works:

1. Some stores are serving as showrooms (think Apple stores) where products are stored in back or ordered onsite through kiosks.
2. More space is being taken by providers of immersive experiences – gyms, laser tag emporiums, organized play spaces, build a bear, or throw a clay pot.
3. Malls are offering upgraded food options, including higher-end restaurants at entrance points.
4. Occasionally, space is being offered for public service purposes such as library branches, DMV offices, police substations, and post office branches.
5. Some east coast malls have added eclectic areas for collaborative offices and coworking suites.

Will customers still be attracted to malls when there are hundreds of new options?

These changes were all underway well before 2020. COVID can probably be considered the third major disruptor for malls in their brief North American history. Mall owners today are struggling to survive, to the point where some are leasing portions of their parking lots for drive-in theaters or outdoor concert venues

Can these property owners hold on long enough to come out on the other side of the pandemic? A definitive COVID-19 “All Clear” simply can’t come soon enough to bring shoppers back in time to save most of these malls. But some higher-end Class A mall properties are likely to receive more grace from their lenders and will have the opportunity to compete in what will become the “new normal for malls.” 

Malls as Communities

While the big trend is towards making malls community hubs, the coronavirus has put a damper on any gatherings of people. Over time, the pre-COVID trends will accelerate, and Class A malls will continue to innovate. They’ll devote even more space to: 

1. Showrooms or fulfillment centers for digitally native brands.
2. Immersive experience venues. 
3. Public services.
4. Consumer healthcare services (dentist, optical, rapid clinics, etc.).
5. Private personal services (realtors, attorneys, accountants, etc.).
6. Co-working space – entire wings or floors or even former anchor store space.
7. Community events and even religious services. (Theaters have been marketing their unused Sunday morning space to small churches for several years.)

Malls of the Future – Mobile and Driverless

We sketched out our first scenario for driverless mobile mall shops, it started with rural communities. In most small towns the customer base is far too small to warrant a full-time presence and permanent location. But a one-day-a-week storefront in five or six communities might be the perfect market size.

For this reason, it’s not a stretch to envision a new form of shopping center catering to mobile businesses. With a stationary common area at its core, the mobile mall will be a central gathering place where a variety of businesses can quickly “plug-in” and set up shop.

RVs, trucks, vans, and other large vehicles can be converted into traveling dental offices, tax preparation centers, chiropractic clinics, and retail storefronts. As they pull into place, merchandise and service areas will expand into the common area creating an “open bazaar” feel for the shoppers.

In this kind of setting, malls will increasingly become one-stop destinations, not just for all your shopping needs but for a growing number of your daily living needs.

Most of the traveling storefronts will be one or two-person businesses, nomadically traveling from city to city on their daily business adventure. Others will work a regular circuit, showing up on the same day each week, building a loyal customer base.

The most exciting part of driverless mobile businesses plugging into a mall setting is that every customer visit will be a unique and different experience. Even old-timers like me can get excited about this concept.

When you combine shopping, working, eating, self-care, professional services, events, and religious services, the mobile storefronts inside malls of the future start to sound like my kind of live, work, and play community. All that’s lacking is residential space, and that will surely follow!

Retail is rapidly evolving and many of yesterday’s storefronts no longer exist. Gone are the Woolco’s, Radio Shacks, Gottschalks, Casual Corners, Ben Franklins, Mervyn’s, Montgomery Wards, and Miller Outposts of a bygone era.

While we still have some people predicting the death of traditional bricks and mortar storefronts, the reality is much different.

Physical stores are hardly going away. Retailers like Apple, Costco, Nordstrom, TJX, Dollar General, H&M, Ulta, Dollar Tree, Aldi, and Sephora are not only thriving, but plan to open thousands of new stores over the coming years.

Yes, ecommerce is making inroads, but it has taken roughly 25 years for ecommerce to reach 10% of retail sales in the U.S. At the same time, 16.4% of total retail sales in the U.K. came from the Internet

The retail industry continues to grow. Even in physical stores, overall sales continue to grow, albeit at a far slower rate than online shopping.

However, the changes happening in retail are far more nuanced than something we can derive from a single statistic. The percentage of e-commerce sales varies tremendously by product category, from around 2% for groceries to more than 20% for apparel to the overwhelming majority of sales in categories where products can be digitally delivered, like music, books, and games.

In the late 1990s, many were predicting the demise of physical stores altogether. Even today, many are still thinking in terms of a “retail apocalypse.”

What’s more likely is that sometime in the future we will hit “peak ecommerce.” That means we reach the maximum percentage of online sales, what some might describe as a hidden barrier, that can’t be crossed.

For me, peak ecommerce is a useful working theory because it begs the questions – how long until we reach it, and how high will it go?

Is there such a thing as peak ecommerce?

Let’s start by asking what it’d look like to have 100% of our retail purchases in the U.S. done online.

• Ten times as many delivery vehicles
• No malls, shopping centers, or retail stores of any kind
• No restaurants, coffee shops, bars, or nightclubs
• With grocery delivery, no personal selection of fruits, vegetables, flowers, or meat
• No beauty salons, nail shops, dog grooming, bike rental, banks, or fitness places
• No movie theaters, escape rooms, yoga classes, trampoline parks, health spas, dance studios, martial arts training, sensory deprivation tanks, or game salons
• No local sales tax for cities and local communities
• Very few places left to go and do things
• A complete reworking of all traffic patterns

Most of us would agree that this is not a likely scenario.

Yes, there may be scenarios where we still have stores, restaurants, and shops and every purchase is made through a personal device, but making a payment online is not the same as making the entire purchase online devoid of any retail experience.

If we consider the social nature of shopping and the number of places we frequent on a daily, even monthly basis, it becomes hard to imagine a world without markets.

For these reasons, and more that I’ll explain below, I would be hard pressed to find an argument for ecommerce to ever go above 30%, and it may indeed top out somewhere below 20%.

That said, retail is a brutally competitive marketplace that is not well described by a single data point.

How much will automated delivery affect your desire to purchase products online?

Are we facing a retail apocalypse?

There are still many who believe that most shopping will ultimately be done online, that commercial districts with brick-and-mortar stores are doomed, and that anyone who doesn’t agree with them is a relic of the past.

On the other end of the spectrum are the physical store cheerleaders that acknowledge the retail climate is changing, think traditional retail will pull through because, retail itself is still growing and after all the hype, even now, ecommerce only represents a meager 10% of all retail.

Neither of these are safe assumptions in our rapidly changing world. Every aspect of the buying-selling process is getting rethought, experimented with, tweaked, reengineered, and reimagined.

Our next generation retail pioneers are already in the process of dissecting and reassembling concepts of ownership, first impressions, product placement, purchasing environments, payment schemes, product lifecycles, delivery methods, the human-product relationship, and even the value and nature of possession.

No one-size-fits-all formula

In the past, consumers had relatively few options for finding and purchasing an item. Storefronts, catalogs, mail-order, tradeshows, and traveling salesmen accounted for most of our options.

Today, Amazon alone has roughly 1.8 million sellers adding another 1.3 million new products every day. Around 50% of all sales on Amazon marketplaces come from third-party sellers. This means people spot a product on Facebook, Twitter, Instagram or LinkedIn before making it to the purchase page on Amazon.

If you happen to be an inventor and develop a new product, does this mean you should focus on Amazon as your primary channel of distribution? Not necessarily.

Amazon still lacks the intimacy of talking to a sales person, having a product demo happen in front of you, feeling the fabric, tasting the food, smelling the fragrances, laying down on a mattress, having a person help you understand your choices, and personally testing the results.

By its very nature, retail will forever be a fragmented multi-option, multi-channel industry where the true innovators are constantly rewriting the rules of engagement.

Are shopping malls dying?

Even though regional malls, and their department store anchors, have been on the decline for more than two decades, the shopping mall industry is still quite viable.

The first threat to malls came in the form of big-box stores and discount mass merchandisers. The latest wave of disruption has come primarily from a surge of off-price and dollar stores. So while it’s easy to point the finger at online shopping, it’s only a piece of a much larger equation. At the same time, due to a surge in popularity, malls had gone through a rapid over-building phase and a correction of some kind was inevitable.

With shifting demographics and traffic patterns, many older malls lost the “relevance” battle to new malls. As a general rule, a newer mall with more desirable tenants will always win over an older mall that still appeals to yesterday’s trendsetters.

Finally, A-list malls are doing very well. This includes a group of 270 or so malls that represent about 20% of all locations, but they generate roughly 75% of total mall revenue. For the most part, these malls are unaffected by the closure of anchor tenants, and any specialty shop vacancies are quickly snatched up.

This is not to say that malls won’t die a painful death or be radically transformed. Rather, our need for finding an endpoint seldom matches with the reality of what’s happening in the trenches. More than likely, malls will still exist in one form or another even a thousand years from now, but consumers will interact with them in radically different ways.

How will ecommerce change in the future?

Twelve forms of future retail that haven’t arrived yet

So what comes next? How will retail morph and transition over the next decade or two? Here are a few options that may be added to the list:

1. Driverless mobile shopping

The number one challenge of traditional retail has always been driving customers to the store. As we move into a highly mobile marketplace, businesses can drive to where the customers already are.

2. Retail as a service

In this scenario, products are not purchased, but simply used for a time and returned. This already exist on some levels but may be expanded in unusual ways.

3. Slashcasters

Taking the “blue light special” to the next level, Slashcasters are a new breed of pitchmen geared to entertain audiences at retail showcases. Slashcaster events will be framed around our growing need for unique one-of-a–kind entertainment designed specifically to create an over-the-top shopping experience.

4. Hyper-individualized come-to-your-home customized products

With this kind of personalized shopping, your private team of professionals will show up at your door to step you through every detail of specialty products ranging from clothing, to shoes, to makeovers.

5. Experts shops

People love to talk to the experts and find answers for those nagging questions that create a cloud of uncertainty around most consumer products. The Apple Stores are a perfect example of an “experts shop” because each of their employees is an expert on the products they sell.

6. Maker districts

Where customers witness the making of products being sold. A maker district can best be described as a cross between an artist colony, farmers market, woodworking shop, music festival, bakery, brewpub, and brainstorming session all happening in the same space. It’s all that and more.

7. Model-driven click-to-buy

Imagine an engaging model working as a human billboard, wearing a 4K video t-shirt, where the t-shirt is looking at the audience as much as the audience is looking at him or her. The model’s primary objective is to garner impressions and sell products, as many as possible.

8. Mystery-driven experience shops/

Most people are already shopping for surprises, so in this type of discovery-your-own-adventure shops, participants are treated to a sprinkling of breadcrumb experiences that will help lead them to the ultimate and final pieces of the puzzle.

9. Certified one-of-kind shops

Every item for purchase is guaranteed to be original, one-of-a-kind merchandise.

10. Mobile mall

Set up as a large open-space building, every morning dozens, maybe hundreds, of mobile vendors show up and set up shop in new and different configurations. Mobile malls are similar in many ways to the Docking Shops.

11. Docking shops

Docking shops will be designed so mobile businesses can “dock” and expand into a larger commons area. First envisioned for rural communities where the customer base is too low to warrant a permanent location, a one-day-a-week storefront in five or six communities might be a perfect arrangement.

12. No-Inventory demo shops

One of the major expenses in traditional retail has been managing inventories and shelf space. Look for a new breed of retails shops that carry no inventory, only product demonstration stations with the ability to order on the spot (to receive a discount).

Final Thoughts

How long before we reach peak ecommerce? After studying consumer dynamics and examining our human need for social interactions, it looks to me like we will reach peak ecommerce by 2030 and peak somewhere around 20%.

At the same time, much our current retail environment will transition to experience-based products with a heavy emphasis on shared connections.

Naturally, when it comes to retail, consumers are in control. They decide what to buy, where to buy, when to buy, and how much they’re willing to pay.

In a connected world, where information is fluid and transparent, retailers become actively engaged in the global conversation. If not, their customers will begin the conversations without them.

Physical stores still provide the best way to create a high-value relationship with customers and build a branded experience.

Bricks and mortar stores are not going away any time soon, but the value they add to their communities and the variety of products they offer will remain in transition for the foreseeable future.