CREJ - Retail Properties Quarterly - September 2015
Yes, it’s true. If you Google, “Is the shopping mall dead?” you will find a number of articles citing facts and figures relative to changing - demographics, shopping habits, decreased sales per square foot, downsizing of national department store brands, mall closings, lack of new mall construction and limited funds available for remodeling. In actuality, about 80 percent of the country’s 1,200 malls are considered healthy, reporting vacancy rates of 10 percent or less, according to CoStar Group (a leading provider of data for the real estate industry). However, in 2006, 94 percent of malls were considered healthy. Nearly 15 percent of malls are 10 to 40 percent vacant, up from 5 percent in 2006. And 3.4 percent of malls, representing more than 30 million sf, are more than 40 percent empty, a threshold that signals the beginning of what many refer to as the “death spiral.” Industry executives freely admit that the mall business has undergone a profound bifurcation since the last recession. Yet even with all these facts and figures at our disposal, many of us have failed to recognize that the mall is not dead or dying, it just isn’t what it used to be. In fact, it’s not even located where it used to be. Traditionally conceived of as an oasis of retail in the midst of suburban sprawl, the “new mall” is growing before our eyes, extremely profitable, responsive to its target demographic, in tune with rapidly changing technologies, and respectful of its context and culture. So where is this “new mall?” The next time you take a trip abroad or to many of our major airports throughout the U.S., take a moment to look at the changing retail environment within the airport. Almost every major airport either has recently upgraded its retail environment or has plans in place, ongoing or in the works, to completely overhaul its retail component. With an average retail vacancy rate of only 5.4 percent, airports are essentially rebranding themselves into a service retail mall by recognizing how critical it is to the bottom line to tap into an existing captive audience of millions of people – a captive demographic that is shifting such that the tradition of trinket shops, duty-free liquor, fast food and news stands is no longer appropriate. As in most growth-oriented retail typologies, there typically is a formula that can be applied to enhance the potential for success. It’s true for airport malls as well, yet the formula is quickly evolving as airports redefine their brand and technology merges with bricks-and-mortar construction. We know, for example, that there is a correlation between dwell time and propensity to buy something, yet the old adage of “the more they shop, the more they will buy” is no longer true in airports. Convenience is the buzzword for airport retail. In fact, new data from retail kiosk maker NCR shows 24 percent of U.S. travelers will buy a gift this holiday season at the airport as last-minute shoppers use the downtime before their flights to top off their Christmas lists. To enhance convenience shopping, many fashion and clothing stores have discarded the dressing room. These stores recognize that shoppers’ desire for speed and convenience rarely allows for lingering and trying on various outfits so the product line includes more tops and accessories. Other convenience-related solutions include phone apps that allow users to connect with terminal restaurants and have food delivered directly to a gate, pop-up stores and kiosks located throughout the terminal that link back to the bricks-and-mortar hub store, and users now can pre-order before they arrive at the airport and have products delivered to a gate, or packaged and ready to go at the retailer checkout counter. Some airports are allowing stores to physically merge with waiting and seating areas, blurring the line between the public concourse and retail store. Most of the recent trends are coming from airports overseas where high-speed transit systems, guaranteed price match with inner city stores, on-the-spot shipping abroad and stores located outside of security are stimulating the rebranding of the airport as a destination mall and commerce center. Following are a few additional trends that are leading the way in the revitalization of airport retail and restaurant services. Local and Regional Specialization In an effort to differentiate and connect to local and regional culture, airports are actively seeking out local vendors for food service as well as retail. Portland’s International Airport focuses on craft breweries and local retailers like cc McKenzie Shoes & Apparel, Columbia Sportswear and Powell’s Books. Johannesburg’s O.R. Tambo has local artisan stores with the same quality of arts and crafts found throughout South Africa. Our very own Denver International Airport attracted local restaurants like Elway’s, Modmarket and Root Down to cement its brand. The new mantra at airports is to offer differentiated product, in a captivating environment, and deliver in the most efficient manner. Does that sound familiar? It should, since this is exactly what bricks-and-mortar shopping centers and malls outside the airport are focusing on as well. The tradition of lining up one nondescript national brand after another is quickly fading. Convergence of the Digital and Physical Channels Surprisingly, only 10 percent of all retail purchases are completed online. Which most likely is why web-rooming (researching items online, then purchasing them in a store) is rapidly replacing show-rooming (shopping in a bricks-and-mortar store without purchasing an item while searching online to find a lower price). To enhance the in-store purchase process and experience, retailers not only are integrating self-serve kiosks and bar code scanning checkout, but also radio-frequency identification that triggers promotional messages when you pick up a product in the store. Soon RFID readers will replace the antiquated check out process we are all familiar with, instead scanning your bags when you leave a store, and payment is automatically made via a suitably enabled mobile phone (or tiny chip embedded in your forearm or teeth), which is linked to your bank account or credit card. Yet, even with all the new technology, retailers have recognized that they do need to alter the physical layout of their airport stores. Aisles have to be wide enough for luggage, and pristine storefront displays used in malls often have to be discarded in favor of more open concepts and the stacking of merchandise at the stores entrance. Rethinking the Order, Purchase, Checkout and Delivery Process Restaurants are leading the way with delivery to your gate (look up Airside Mobile’s “B-4 You Board” app, presently available in five airports, but expanding rapidly) and digital order kiosks. Our recent proposal for an Icebox Café restaurant at DIA includes digital and physical ordering, delivery to the gate, and even connectivity to an Icebox restaurant at the other end of your trip so your order is waiting for you at your next destination. Blurring the Sectors While coffee shops merge with bookstores and supermarkets offer medical assistance, airport malls are blurring the sectors on a much larger scale. Amsterdam’s Schiphol Airport has a super mall that includes a library, art museum and casino. Hong Kong’s International Airport has a huge 3-D theater, over 160 stores and a golf course. Dubai’s International Airport duty-free operation has over 200,000 square feet of luxury retail and monthly raffle drawing giveaways of sports cars and $2 million in cash. Shoppers are rewarded with more raffle tickets based on the amount of purchases they make. These trends are becoming commonplace and can be observed at several national and international airports. If you think this idea of the “new mall” is foreign to DIA, think again. There are major plans in the works at the airport to rebrand the Jeppeson Terminal and turn it into more than just a sinuous line of disgruntled passengers waiting to be checked through security. Finally, the grand hall of DIA will be positioned to become the showcase and public space it was meant to be. Even with the unfortunate visual mistake of the soon-to-be-open “bookend hotel,” DIA remains one of the most memorable and enjoyable airports in the world. Let’s hope our airport management team and city officials are in tune with what’s going on internationally, and that they embrace the potential our light-filled, iconic, nationally recognized airport has to lead the way in the rebirth of the new mall.