Industry experts like me have been using the phrase “retail apocalypse” for almost a decade to describe the closing of brick-and-mortar stores and shopping malls brought on by changes in consumer behavior, a shift to e-commerce sales, and the dominance of giants like Wal-Mart and Amazon. While we were not wrong to use this phrase—the pictures of once-thriving shopping malls having fallen into disrepair certainly looked post-apocalyptic—it leaves us at a bit of a loss to describe the situation we currently find ourselves in. Today, while shoppers around the world are on lockdown, malls stand shuttered, parking lots sit empty, employees have been furloughed or laid off, and retailers are struggling to figure out what comes next.
It’s not that any of us were exaggerating when we began using the word apocalypse—the situation has been bad and getting worse for years. Clothing and department stores, which have always been staples in malls, have been among the hardest hit. Over 8,000 retail stores closed in 2017, followed by 5,500 in 2018, and 9,200 last year. In 2017, Credit Suisse predicted that 25% of the remaining shopping malls would be closed by 2022. Of course, that forecast was made before anyone had even imagined the effects of a global pandemic.
The current retail bloodbath caused by months-long closures and uncertainty about when consumers will be allowed to/want to return to physical stores will exacerbate an already shaky situation. New predictions suggest that 15,000 retail outlets will close this year. Department stores, which serve as the large anchor tenants for shopping malls, will likely be among them. Neiman Marcus is expected to file for bankruptcy any day now, and J.C. Penney might not be far behind. Macy’s announced that with its 775 stores (including Bloomingdales and Blue Mercury) closed, it was furloughing most of its 125,000 employees. Other mall venues are feeling the pain as well—Cheesecake Factory, a chain restaurant well known to mall shoppers, furloughed 41,000 employees, and announced it wouldn’t be able to pay April’s rent before reaching a deal with Roark Investments that could save it.
Mall owners are undoubtedly scared—96% of retailers in one survey said they are seeking rent abatement from their landlords. Taubman, which owns 15.8 million square feet of mall space across the country, took a hard line with its tenants. In a letter obtained by USA Today the company wrote: “Landlord’s obligation to pay its lenders, utility companies, insurance companies and the like, to ensure the safety and security of the building and maintain the appropriate level of operations, remains…The rental income that we receive from Tenants is essential in order to meet these obligations. All Tenants will be expected to meet their Lease obligations.”
This kind of corporate thinking is outdated it could lead to an even bigger bloodbath down the line for mall operators. It’s not just that retail tenants are going to need help to survive, consumers’ expectations have also changed rapidly in this pandemic. In a survey that Jackman commissioned of 5000 North American consumers, 71% of consumers said their shopping habits had changed. We know that they are relying more heavily on digital ordering as well as delivery and curbside pick-up. And, while 40% of consumers are excited to shop in a physical store again after Covid-19, many expressed a real apprehension of returning to public spaces (39% of consumers said they would never feel the same about large social events like concerts or festivals.)
Other attitudes have changed as well, consumers are more committed to local businesses, feel more connected to their communities, and want to see corporations have a conscience. In our survey 43% of consumers said the statement, “I believe organizations need to be held accountable for their decision” had become more true than it used to be and 30% said the same about the statement, “Being charitable is a natural and essential part of life.”
This situation is definitely worse than the retail apocalypse we’ve been discussing, but it’s not the end of the world, or even necessarily the end of the mall. We believe consumers will come back to the mall if owners act wisely. Here are three things they need to consider right now.
1. Get the new table stakes right. Shoppers have changed their mindset and behavior in the last 6 weeks, and those changes are not likely to disappear when lockdown orders are lifted and malls have officially re-opened.
- Focus on health. Just like grocery stores are having to do now, when malls open, they will have to show that they are taking the safety of their customers and employees very seriously. Mall owners must prioritize cleaning and sanitizing, and make these efforts visible to consumers. They should also make sure hand sanitizer dispensers are available throughout the mall, and consider installing handwashing areas in easily accessible places (other than restrooms).
- Consider new safety protocols. We don’t yet know what safety protocols will look like going forward, but we do know that consumers are wary of public places and likely to stay that way. Malls should be prepared to compel customers and staff to wear masks if public health experts continue to recommend it; explore changes to layouts and foot traffic flow that enable some social distancing, and consider going as far as temperature checks upon entry.
- Embrace new ways of shopping. We have passed the digital Rubicon. Even consumers who were mistrustful of online shopping before are now seeing it as vital. Mall owners were already considering ways to enhance digital options, but now it is essential that they let customers virtually shop at the mall. Creating one site that shows what is in stock across the entire mall and facilitating click-and-collect shopping for all tenants is a new minimum.
2. Be aggressive and flexible in order to attract new tenants. Once upon a time, mall owners could afford to be super selective about what kind of businesses they welcomed and create iron-clad leases that demanded a whole quarter’s rent upfront. But that was then and going forward, there will be huge footprints to fill and few businesses that have the liquidity such leases require. It’s time to get scrappy.
- Experiment with new leasing models. In the post-COVID-19 world, mall owners should be looking at new leasing models and rent structures, whether their short-term leases, shared spaces, pop-ups, or revenue sharing arrangements.
- Be open to different tenants. Chain retail and department stores are hurting, and malls need to be open to smaller stores and local companies as well as experiential, non-retail tenants like workshare spaces, non-profit organizations, education companies, and community spaces.
- Offer tenant’s help. Mall operators must become experts in rapidly setting up experiential stores to help less knowledgeable retailers get underway. And, they can’t rely on old or new tenants to draw in customers. They must generate traffic by creating events and other reasons for people to come, above and beyond the list of stores on the directory.
3. Become a destination that stands for something. In recent years, consumers have started to pay more attention to the values that businesses and brands express. This idea has been accentuated by the pandemic. Consumers feel that organizations should be held accountable for the decisions they made during the crisis and want to support businesses that do are doing the right thing.
- Do right by your tenants now. Mall owners need to be seen as the good guys. If they do not give rent relief to struggling retail stores, they will be harshly judged in the future. Becoming known as a caring corporation that helped in whatever way it could when we were in the worst of it, will go a long way in gathering goodwill and consumer loyalty.
- Make connections to the community. Trust and support for local institutions and businesses have increased during this crisis, while trust in large organizations, brands, and even governments has gone down. In our survey, 35% of consumers saw members of their community and smaller local businesses as trustworthy compared to 25% who said this of large/national brands and companies. Mall owners need to connect to the community and local businesses and offer their help whenever possible.
- Consider offering temporary spaces for displaced businesses. Down the line, when malls are open, a mall owner could offer free pop-up space to beloved local businesses that were forced to close because of the crisis. Such partnerships could bring the loyal customers missing their old favorite restaurant or shop into the mall, give struggling businesses the opportunity to raise the cash they need for relaunches, and position the mall owner as a compassionate member of the community.
Malls were conceived as community gathering spaces. Austrian-born architect Victor Gruen wanted to give suburban America a taste of European cities where one could walk from business to business, see other people, eat, shop, and relax. His original vision of malls had retail stores next to other types of services like medical offices, libraries, community spaces, and even residences. It was, in essence, a planned city—enclosed to control for weather and open in the middle to draw people into stores.
His first shopping mall opened in 1954 and provided an archetype for the 1,500 that would follow. While malls became prosperous retail spaces over the next few decades, this overall vision was never realized. Moreover, rather than becoming unique community spaces where local retailers could thrive, shopping malls across North America became homogenized collections of chain stores and restaurants selling the same fashion and serving the same food. They lost the thread, and even Gruen came to denounce his creation as contributing to suburban sprawl rather than solving it.
Within the great reset forced upon all sectors of commerce right now, we see an opportunity for malls to reinvent themselves and become a community hub again. In the post-COVID world, “a place that has stores that sell stuff” is no longer a relevant proposition. But, a community hub with local stores that helps local businesses grow, and offers a space for people to safely congregate, along with programming in which they can learn about anything from growing a business to cultivating a wardrobe, might be just what we need.
According to our survey, only 18% of consumers think shopping will never be the same, but if malls hope to lure shoppers back post-pandemic, they must start this reinvention now while their doors are still locked. They must start by publicly doing the right thing by their current tenants. As they plan for the future, they must begin to show flexibility in lease arrangements; work to attract a new array of businesses; and ultimately, become places that offer values, education, community, and, above all, safety. People in communities around the country depend on malls for employment, entertainment, and a place to go. When the crisis passes, we will want and need all of the things again.
- COVID-19 Does Not Have to be the End of Shopping Malls - May 14, 2020