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Malls have changed drastically over the last several years, both in form and function. We take a look at how they have evolved over time, and how REITs are adapting for the future ahead.
Over time, we have seen the shopping mall transition, in both physical form and in purpose. With the rise of digital, shopping malls and centres have undergone major change. Taking this change by storm, many have adapted in creative ways that have been beneficial for both their customers and their bottom line.
Back in time
Malls used to be a hub of socialization, and a common hangout spot for younger generations (the “mall rat” stereotype, anyone?). For older generations, the mall was the main spot that all shopping took place. A variety of stores and a known quantity with regards to quality, and selection. If they didn’t have something in a store that you wanted, they could try to bring it in, but for the most part the inventory they had is the inventory you got.
Retailers managed sales based on seasonality (i.e. increased foot traffic around the holidays) and the inventory they had in stock. They didn’t have much data about their customers, but could recognize some regulars and some overall behaviour of shoppers based on what products were available when. Emphasis was on making the shops inviting, in order to capitalize on foot traffic and increased the chance that browsing shoppers would step into their store.
Malls simply needed to make sure they had the brands that were popular or most looked for, in addition to having facilities and amenities catering to the socialization aspect. The REITs that owned these malls were focused on increasing the number of properties within their portfolio. More was more.
No time like the present
Malls today operate under a more vague banner than they had in the past. With great emphasis on how technology and experiences can affect the shopper journey, malls have acknowledged that they need to offer different experiences to continue attracting shoppers.
1. The new shopper journey
The traditional buyer journey got a big update, one that involves more touch-points than only a brick and mortar store.
Via the Digital Marketing Institute: “67% of the modern buyer’s journey now takes place online, according to findings from SiriusDecisions.” With the addition of digital to help inform and research products consumers are looking for, the new journey melds digital and physical. Many retailers have capitalized on this by offering Buy Online, Pick Up In-Store (BOPIS) which has been largely successful.
The National Retail Federation (NRF) did a study that indicated that 45% of retailers adopted BOPIS services last year, and that 37% of consumers used the service to get their goods faster from stores that had a connected digital and physical presence.
2. New tenant portfolios
In conjunction with a new shopper journey, we see a natural evolution of the tenant mix. REITs have been changing the types of tenants to better fit with the evolved expectations of shoppers. The rise of new varieties, like the digitally native vertical brands, as well as a changing of the guard with tenants that were seen as mall staples for years has things shaking up in the face of this new customer journey.
These new tenants differ in several ways. Brands that have invested in experiences are doing really well, as they encourage the shopper to not only make a purchase but to stay longer, and interact with their brand.
3. Embracing the phy-gital
The presence of physical goods is going down, with stores carrying less inventory but getting creative with showing customers all of the options available at their fingertips. As customers now demand variety in products as well as quality (customization and personalization merge heavily in this area), being able to cut down on inventory holding costs while still allowing the customer to purchase without losing convenience is crucial.
This is leading to digital inventory and order systems - where a customer finds an item in store and uses a tablet or other device to see the colour options and fabrics available to them - as well as showrooming for goods that aren’t even present (think Tesla).
4. The rise of the experience
Another way tenants are evolving is with the rise and fall of the anchor tenant. Anchor tenants are large, well-known brand stores that usually serve as cardinal directions within a mall. Many of them have gone under in recent years, or have failed to get off the ground entirely.
Examples of situations like the recent Target flop in the Canadian market have added to a growing trepidation REITs have about anchor tenants. With the most recent upending of Sears leaving many malls across North America, REITs are looking at empty real estate in their properties and needing to find a stop-gap.
As a result, many REITs are prioritizing new, experience-based anchor tenants, to continue to entice visitors. Movie theatres, interesting restaurants, and even things like indoor water parks are leading the charge in experiential attractions over store attractions.
An example of a retailer who understands the idea of new age brick and mortar, Lululemon has transformed their Chicago flagship store into what could be described as a full routine’s worth of experiences. It has a restaurant, studio space, and concierge desk. It also has exclusive merchandise available as well as a store-exclusive policy that shoppers can try on product in the workout classes, free of charge. A great way to allow customers to see and feel the benefits of their products in action.
Trends and ways of adapting for the future
Consumers expect more out of brands - through products, yes, but also in ways of knowing what they want and why they want it. Personalization and a brand relationship give way to loyalty, and shoppers are being more stringent with their loyalty than ever before. However, due to the amount of options available, if a customer decides to become a repeat customer for a brand, it is a much more solid bridge.
We are also starting to see the shift in how properties are evolving physically. There is a much larger push for mixed-use spaces that combine retail, living, and even medical as one-stop shop communities. This is banking on the convenience factor that is the new bar for customers, and implementing it in a way that they might not expect.
So where do we go from here?
There is plenty of work left to do to continue evolving with the way consumers purchase. Those who work with the trend rather than fight against it seem to have an inside line on staying relevant, but only time will tell.