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A New Model for Shopping Malls

How some malls are thriving while others are dying.
Westfield World Trade Center, New York City | Source: Shutterstock
By
  • Hayley Phelan

NEW YORK, United States — On an unseasonably warm day in April, a swarm of tourists gathered at the entrance to the Westfield World Trade Center, Manhattan's newest mall, marvelling at the sunlight pouring through the soaring white cathedral of the Oculus. Many posed for selfies, while others asked passers-by to snap photos of them and their families.

Others were passing through on their way to work; the mall sits on top of the city’s biggest transit hub. A group of twenty-somethings were en route to Hudson Eats, the food court boasting New York-only food vendors at the nearby Brookfield Place mall, which can be reached by an underground corridor. The crowds, on a beautiful day in a city renowned for shopping, demonstrate a certain paradox; at a time when many are proclaiming the mall “dead,” shopping centres like Westfield World Trade Center — which houses luxury tenants like Smythson and Dior Beauty and is set to attract over 100 million visitors a year — are thriving.

These are hard-won victories in a difficult retail climate.

Convenience was central to the conception of malls. They were first designed as one-stop shops for consumers to buy everything in a single place. It wasn’t a new concept; shoppers in urban areas had been flocking to large department stores for over a century. But the growth of suburbs in the mid-20th century created new needs. In many cases, suburbanites also needed places to hang out, and emerging shopping malls, from the very beginning, functioned as both retail destinations and town centres.

Convenience is still king among consumers — but malls can’t compete with the internet. This may be one of the more insidious effects of online shopping on the mall landscape. “The heart of the problem now is time,” explains Nina Fuhrman, head of retail strategy at IDEO. “Time is currency. So the challenge is to address how consumers want to spend their time. If I can take care of my transactional shopping online at home when it’s convenient for me, it frees up time during the day that I could spend with my family... If I go shopping, the nature of that shopping will be very different.”

As venture capitalist Chris Dixon wrote in 2012: "What most people agree on is that e-commerce as a whole will continue to grow rapidly and eat into offline commerce. In the steady state, offline commerce will serve only two purposes: immediacy (stuff you need right away), and experiences (showroom, fun venues). All other commerce will happen online."

While the needs around shopping are lessened, consumers' need for a 'third place' is still very real.

Malls are being forced to redouble their efforts to offer more than an opportunity to shop. While in the past, a movie theatre or speciality food store might have cut it, today consumers expect a good deal more. “I don’t think they should be thinking about themselves as shopping malls but as an evolution of a community centre,” explains Fuhrman. “While the needs around shopping are lessened, consumers’ need for a ‘third place’ is still very real.”

The ‘third place’ is a notion explored by sociologist Ray Oldenberg in his book The Great Good Place; if home is the ‘first place,’ and work is the ‘second place,’ the ‘third place’ is an informal gathering space where people can mingle outside the realms of the first two environments. Besides being good for the community, third places can be cash cows; it’s why Starbucks worked the concept into its mission statement. And pioneering mall owners are following suit, creating mixed-use spaces that provide reasons for consumers to visit regularly, and whenever possible, linger.

“Time in a location directly impacts conversion rate,” says Jonathan Schley, whose real estate consultancy works with Byredo, Oliver Peoples and J.W. Anderson. “If you can keep people in the mall for four hours with dinner followed by drinks, versus 30 minutes or an hour just shopping, that’s the correct way forward for malls.”

Bill Hecht, COO of Westfield, says that one of the biggest challenges faced by retail property owners is “sameness in the offering.” In today’s hyper-connected, hyper-mobile age, consumers get bored easily. A mall with the same brand names as everywhere else has no draw. It’s a fact that Iguatemi, which owns some of the leading upmarket malls in Brazil, is well aware of.

"We are the only mall with a team exclusively dedicated to tenant mix," claims Iguatemi CEO Carlos Jereissati. "We are constantly looking for new trends, new retailers, new designers and new services." The company strives for a democratic and diverse mix that includes brands that are distinct to the location: "Part of Iguatemi's DNA is to mix local Brazilian designers with international brands," says Jereissati. At the São Paulo location, affordable Brazilian brands like Ellus and Iodice mingle with the likes of Chanel, Gucci and Prada.

Malls’ usually unforgiving lease agreements make pop-up shops — a key trend in street retail — difficult to pull off, so property managers must take extra care to select the right tenants. Debra Gunn Downing, executive director of marketing for South Coast Plaza, attributes part of the 50-year-old Orange County, California mall’s success to the forward-thinking of the Segerstrom family, which owns it.

“One of the huge advantages of being family-owned, is that we can play the long game,” says Gunn Downing. “The family has never been about jumping on a certain trend, they always go back to what the local market needs and focusing on that in a very strategic and careful way. That may mean that a space will sit empty for a while, because the family is looking for the absolute right fit.”

As a result, the property has a number of flagships and unique retailers; most recently, it added Miami boutique The Webster to the mix. The strategy has paid off: According to Gunn Downing, the mall does $2 billion in annual sales.

But while retail mix is a vital component, Mortimer Singer, CEO of Traub, whose clients include Bloomingdales, Al Tayer in the Middle East, and Borghese, says it is only one ingredient in the formula for success. "Yes, it has to have great quality stores… but also a mix of businesses, from hospitality to food and beverage, a nice environment and entertainment."

Food and Beverage

The fastest way to get people to hang around is to feed them. So it’s no surprise that the food court has become an important battleground for malls. And with so-called foodie culture going mainstream, once-typical fast food offerings no longer cut it.

“It’s very clear that customers today expect to have a great selection of not just food, but fine food, at a shopping destination,” says Gunn Downing of South Coast Plaza, which in the past two years has added Water Grill, a high-end seafood restaurant, and Vaca, owned by Top Chef competitor Amar Santana.

Food is at the centre of the Howard Hughes Corporation’s redevelopment plans for New York’s South Street Seaport, the 170,000 square foot building where Milan boutique 10 Corso Como will be opening an outpost. The company has confirmed that Jean-Georges Vongerichten and David Chang will have locations there, as well as a 40,000 square foot Eataly-style market in the historic Tin Building. “Our goal is to create what we believe will be the best food experience anywhere in the world,” says David Weinreb, CEO of the Howard Hughes Corporation.

Environment

Malls are also experimenting with other ways to keep shoppers entertained. At the base level of that initiative is creating a space that shoppers actually want to be in. “What makes malls difficult is that they’re controlled environments, which is inherently inauthentic,” says Schley.

At South Coast Plaza, it’s as simple as having fresh flowers. “Our entire shopping centre is filled right now with the most fantastic hydrangeas,” says Gunn Downing. “It sounds cliché but it’s very important to create these unique experiences for shoppers, down to the finest detail.”

The JK Iguatemi mall in São Paulo, Brazil | Source: Shutterstock

“We pay a lot of attention to detail on how we build and plan the interiors of our malls,” says Jereissati, who describes Iguatemi’s shopping malls as “beautiful environments filled with flowers, art, great design and architecture.” He cites the JK Iguatemi as a particularly vivid example: “There is a lot of light, open spaces, beautiful details and high-end materials.”

“What’s the Instagrammable moment?” asks Schley. “That’s a huge thing. People are going to seek that out. If you have it, you absolutely already have a draw.”

For Louise Nichol, editor-in-chief of Harper's Bazaar Arabia, The Dubai Mall (TDM) is a good example of how important it is to have a social media-friendly environment. “TDM in particular is clever at blending digital with real life — social media penetration is very high here and the mall and its surrounding area offers plenty of content creation opportunities,” she says.

Entertainment

Special events and cultural initiatives also generate foot traffic. In August 2016, Westfield acquired the production company of Tony-winning Broadway producer Scott Sanders, installing Sanders as the company’s creative head of global entertainment.

“We’re putting event-ready spaces in all [our new projects], so that all anyone needs to do is come in and plug into staging and theatrical lighting, as well as being able to broadcast,” says Hecht. “This is a whole new business.”

Cultural and art events will also be a big initiative for South Street Seaport, which is expected to soon unveil the name of the artist who will be creating a “sculptural element” on the roof, which Weinrib hopes will “become an icon for the city and an attraction in itself.”

Meanwhile, South Coast Plaza has enjoyed the benefits of being next door to the world-class Segerstrom Center for the Arts. The two properties are owned by the same family and regularly partner for events to great effect. The mall’s lunar New Year festival, for instance, helped drive sales in January, a typically slow time. “We definitely saw the results in the stores,” says Gunn Downing.

In 2016, when Iguatemi celebrated its 50th anniversary, it marked the occasion with the re-opening of its beloved Mini Plaza, the heart of the company's original flagship, Iguatemi Sao Paolo. Along with the unveiling of Saint Laurent and Cartier boutiques, the centre played host to an installation by Argentine contemporary artist Leandro Erlich.

Kid Friendly

Today’s consumers want their children to have a good time too, an expectation not lost on developers of TDM and Mall of the Emirates (MoE) in the Middle East. “This is very important for the consumer in the region, which is very family-centric,” says Nichol of Harper's Bazaar Arabia. “Both malls have top-line attractions — the aquarium and fountains in TDM and Ski Dubai in MoE — in addition to mini theme parks with scaled-down rollercoasters.”

The aquarium at The Dubai Mall | Source: Shutterstock

Two companies capitalising on this demand are Cinepolis — which has added jungle gyms and a playtime intermission to its kid-focused cinemas — and Kidzania, which features a child-size replica of a city in which children can role-play at bottling Coca-Cola and pulling teeth in a Crest-themed dental office. Putting aside criticism that the latter is an early form of consumerist indoctrination, both have proven successful additions to luxury malls, particularly in the Middle East.

“Increasingly the consumer — particularly in Asia and in the Middle East but also more and more globally — is much more interested in family-oriented entertainment,” says Traub’s Singer. “Now people want to bring their children everywhere.”

Mixed Use

Once shoppers have been enticed, the trick is to keep them coming back, ideally with tenants that invite habitual visits. Hecht says that while Westfield has always been keen to incorporate grocery stores and gyms, which invite repeat visits, they’d meet with resistance from department stores and anchor tenants, who complained that such businesses would only consume parking, not drive sales. Now, the thinking has changed.

“We’ve undergone a very significant retooling as a company,” said Hecht. “We’re really focused on changing and rewriting the rules of retail, making the shopping experience much broader and more diverse. Fashion always has been and will continue to be a major staple, but we’re moving beyond that into other areas.”

A key area of growth for Westfield has been the health and wellness sector, particularly what Hecht calls, “micro-fitness,” meaning boutique concepts like Barry’s Bootcamp and SoulCycle. In September 2015, Westfield opened The Village Topanga in California, a complement to Westfield Topanga across the street, with a focus on health and wellness tenants.

The Village boasts two gyms, athleisure brands including Kate Hudson’s Fabletics, Yoga Works, Burke-Williams Day Spa, and a UCLA Health Clinic, which offers high quality medical care in an atmosphere that Hecht describes as more Equinox than doctor’s office. The Village added an additional 7.5 million annual customer visits to Westfield Topanga’s; as of February 2017, Topanga’s overall traffic was up 3.6 percent on a moving annual basis, with over 21 million shoppers visiting the centre every year.

Hecht also sees an opportunity in the “dayworking” space. “We are very intrigued by what groups like WeWork are doing,” he says. The company has already dipped its toes into the arena with its Bespoke concept, a combined co-working, event and tech demo space designed to foster a retail and tech community, at its Westfield San Francisco Centre.

With the same goal in mind, the Middle East’s TDM and MoE are both anchored by hotels and a supermarket. “Whether popping out for fresh fruit or to check out the Louis Vuitton-Jeff Koons collaboration or to take the kids to a dance class, [both malls] are a very natural destination for residents, while being attractions for tourists,” Nichols says.

Meanwhile, the JK Iguatemi has an office tower attached to it. “We give our clients reasons to be here during the day, in the evening, during the week and weekends,” says Jereissati.

Residential

Westfield has been developing mall-adjacent residential properties, a no-brainer because doing so will not only create a revenue stream from rent, but will also increase foot traffic to stores. Already, Hecht says, “the residential buildings in close proximity to our malls can charge slightly above market rent, because they have access to all our amenities close by.”

“As we see the lines blurring between where you work and where you play and where you live, we’re going to see more residences and office spaces attached to malls,” says Fuhrman. “We’re already seeing this happen in a lot of metropolitan cities, like Sao Paulo and Tokyo, where you have major density, and it just has to be that way. But it serves as a pretty amazing convenience to have everything nearby, to not have to drive anywhere to do your shopping or go to the gym.”

The changing shape of the mall looks set to continue. The future of driverless cars, for instance, is already on Hecht’s mind. And no wonder, mall operators, typically devote 30 to 40 percent of property to parking. “We’re already seeing the impact of the massive amount of ride-sharing going on,” he says. “Twenty years ago, when you built a mall, you always had five parking spaces for every thousand feet. Over the last 10 years we’ve dropped that ratio… We’re decreasing parking areas and quadrupling our valet areas.” he explains. “I’m a believer that cars will be automated on the streets. When that occurs, I think you’ll see an even bigger need for valet drop off, and less of a need for parking. Without purchasing more land, we’ll have a new developable area.”

Indeed, the mall as we know it is being reshaped by a wide range of technological forces, from the e-commerce boom of the past decade, to the ride-sharing movement of today, and the self-driving cars of the near future. While each of these developments presents its own set of challenges, for savvy property owners there’s plenty of opportunity not just to survive — but to thrive.

Editor's Note: This article was revised on May 25 2017. Due to an editing error, a previous version of this article misstated that Bill Hecht is the CEO of Westfield. This is incorrect. Hecht is Westfield’s COO.

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