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It’s still early in the holiday shopping season but Retail Insider has just reported the winners and losers this year. Not unexpectedly, the winners are Amazon and mobile shopping and the losers are in-store traffic and department stores which rely on foot traffic for well over 80% of sales.
Since department stores anchor most malls, the take away from this is that malls and the retailers that live there are going to have a big hurdle to overcome to bring crowds back on the remaining five pre-Christmas busiest shopping days, per Shoppertrak:
- Saturday, Dec. 23
- Saturday, Dec. 16
- Friday, Dec. 22
- Saturday, Dec. 9
- Thursday, Dec. 21
Tuesday, Dec. 26 and Saturday, Dec. 30 are also predicted to be big days at retail, largely for shoppers looking to score after-holiday deals.
The dismal report on shopper foot traffic comes from data compiled by Shoppertrak. It reports that in-store traffic declined by 1.6% over the Thanksgiving weekend from last year, but by less than 1% for Black Friday, the reputed biggest in-store shopping day of the year.
Appropriately, Shoppertrak’s Brian Field, senior director of advisory services, tried to put a positive spin on the story. “There has been a significant debate surrounding the shifting importance of brick-and-mortar retail, and the fact that shopper visits remain intact on Black Friday illustrates that physical retail is still highly relevant and, when done right, profitable,” he said.
But a look at how in-store holiday foot traffic has trended historically shows the picture isn’t pretty. While Black Friday ‘feets on the street’ is flat from 2016, it is way down from 2011 on all-important Black Friday, as well as off Saturday and Sunday following. The increase in Thanksgiving Day traffic this year is only a blip in an otherwise sad report on shoppers’ trips to the store.
Heaven knows, it isn’t easy being a retailer today and it’s even harder to be in a mall location where your results live and die by the number of shoppers that come there. And when the traditional mall anchors, i.e. department stores, aren’t holding up their end of the bargain to draw customers, what are retailers in mall’s thoroughfares and common areas going to do?
An answer to that question comes in a research study by FTI Consulting, entitled Retail Real Estate Beat, prepared by Oxford Economics. Based upon a 2017 survey of the 30 largest REITs, mall and shopping center owners and 90 US-based retailers, with the majority operating 250+ locations, the results show a huge gap between “the perceptions of mall and shopping center landlords and their retail tenants about the role of brick-and-mortar in the future of retail,” the report states.
The disconnects between these partners are glaring and need to be fixed to solve the mall traffic problem. While all parties agree that physical stores will remain the predominant revenue channel through 2020, both malls and retailers need to be reading off the same page. Here are where they diverge:
Mall owners and retail tenants view online’s threat differently
When it comes to the impact of the technology-powered consumer on brick-and-mortar retail, you’d expect that both mall landlords and tenant retailers would agree, but that is not the case. Some 80% of shopping center landlords say the “continued shift away from physical stores to online shopping” is a grave concern, while only 54% of retailers report the same.
Given the large retailers surveyed here operate in an omni-channel environment, so that their short falls in-store traffic is expected to be made up by shoppers’ shift online. In other words, they already have their online game on. Yet the high numbers of mall owners that view online as a threat strongly suggests that they have yet to get an effective online mall marketing strategy to engage guests and draw them to the mall as a place to do things beyond just buying things.
Most mall websites that I visit are nothing more than online retail directories, like the King of Prussia mall site, which is the largest U.S. mall as measured in leasable square footage. On that site you won’t find a video or actual photos of the experience of shopping in King of Prussia. Nor too on The Mall of America site which may be even worse, since the home page at least is quite crowded and information dense.
Since a mall is ultimately a destination to visit, these websites should take inspiration from other destination-specific websites like Disney World or Universal Studios Hollywood where people can virtually experience the fun of visiting there. Malls may not operate in an omni-channel world, but they definitely must compete online where most shoppers start to plan their shopping trips.
Changing shopper demographics and shopping preferences stump malls, but retailers less so
Another area of divergence is found in how malls and retailers assess the changing demographics of shoppers and their evolving preferences in shopping experiences. Some 40% of retailers, as compared with 70% of mall owners, are alarmed by the demo and shopping preference shifts. My read of this divergence is that retailers at least have transactional big data that helps them track who their shoppers are, where and how they shop, but malls haven’t really tapped into the big data pool or done their own research with local shoppers to assess and understand these changes.
Landlords tend to overestimate factors like location, architectural design and convenient parking as drawing guests. Retailers, on the other hand, want rapid response to service issues, regular upgrades and renovations, and advertising and marketing support. In addition, retailers are keen on more flexible store configurations and delivering more personalized shopping experiences to their customers. Landlords see these factors as less important overall.
Looking to the future, 97% of mall owners identify “increasing use of social media and mobile applications” as an area of emphasis, whereas only 57% are using social media and mobile today. But if they are only putting social media and mobile into the pipe line now, will they be ready to roll such strategies out in three years, when, no doubt, these platforms will have changed significantly from what they are today?
In conclusion, malls have to figure out their own strategy to compete in an omni-channel world to drive traffic to their destinations. Retailers largely have felt the pain and for better or worse have been dealing with it for years. Malls, it appears, have yet to belly up to the challenges.
For malls it may mean inviting more digital-native retailers into their malls with flexible, short-term leases. Or becoming a hot spot for last-mile distribution for e-tailers with pick-up/return service. Or designing more interactive, engaging websites that stimulate guest visits, rather than mere retailer directories. Or simply conducting market research with consumers in their local community to gauge where they are falling short, assess new opportunities and design shopping environments that meet the customers’ new needs and stimulate their interest.
From this FTI Consulting study, at least, it appears that malls owners are lagging behind retailers in understanding the changing face of retail today. Malls have got to come up to speed and see what their retail tenants already see: how the world of retail is evolving.
Let me end with comments from Cynthia Nelson, senior managing director in the real estate & infrastructure industry group at FTI Consulting, to which I heartedly agree:
Perhaps the most important finding to come out of the [study] is the mandate for landlords and their retail tenants to develop a better understanding of each other’s needs and how the evolving nature of retail will affect both sides of the equation. Mall owners and their retail tenants can purposefully focus on ways to work together to more effectively compete with the existential threat posed by retail game-changers like Amazon and Walmart and thrive for years to come.”
