Originally created 02/19/01

Malls revamp to fend off e-commerce



Not long ago, mall owners worried that e-tailing would cut deeply into brick-and-mortar store sales. Some in the industry even predicted that e-commerce would spell the death of malls. But many malls have accepted the challenge and are taking steps to make sure they will remain big-time players in retail.

Back in the 1999 holiday season, when online purchases were expected to reach dizzying heights, some mall owners started getting worried. Mall owners are entitled to collect between 5 percent and 10 percent of their tenants' sales beyond a certain threshold. They saw a threat from online retailing: Would e-tailing mean lower sales at brick-and-mortar stores, leading to less rent?

Fast forward to today. Many e-tailers have gone bust, some others are hurting, and the threat has faded. Like catalogs, e-commerce is now considered another channel for retail, and multichannel retailing has become a buzzword among retailers.

Signs are evident that real estate investment trusts, or REITs, which typically own malls, are committed to malls as they continue to be built across the country.

E-commerce hasn't significantly altered consumer behavior, experts say, adding that the death of malls was exaggerated. But when asked what they see as the future for malls, the experts' answers varied.

"This is like the weather," said Barry Vinocur, editor and publisher of Realty Stock Review. "You ask five weathermen, you get five different answers."

Most experts, however, do say what's likely to change is the mix of stores. Some are predicting that malls could have a more varied tenant mix, with more big-box retailers moving in. Others say there could be more entertainment tenants such as restaurants, arcades and movie theaters, even as the theater industry is currently experiencing a shakeout.

The biggest changes for malls and the real estate industry, however, are expected to come from technology.

On a recent afternoon at Westfield Shoppingtown in St. Louis, Diane Sutton and Carole Brueggeman were shopping in the mall's Naturalizer shoe store.

"Oh, that's a little wide," Brueggeman said, as Sutton tried on a shoe.

"But they do feel good," Sutton said, pivoting her foot.

For clothing or shoes, both shoppers say they like to try on items before making a purchase. "I like to see what it feels like when it's on, see what it looks like," Sutton said.

Sutton and Brueggeman's shopping experience, experts say, is the reason malls will stay around.

But what eventually happens to mall stores could differ depending on the kinds of merchandise sold and the experience consumers will get from the stores, experts say. Stores such as Naturalizer likely will remain due to their experience-based retailing.

"If you're a touchy-feely type of shopper, you want to go out and try it on," said Mark Wuller, a retail consultant at Accenture in St. Louis.

Other stores that sell staple products, similar to those sold in catalogs, could go the way of Gateway Inc. or Dell Computer Corp. The computer retailers' brick-and-mortar stores allow shoppers to try their computer products, but sales are primarily made online or ordered at stores. The products are then shipped to the customer, eliminating the need for inventory, and stores could shrink in size as a result, some say.

Consultant Ramesh Kini, a former professor of marketing at Washington University, suggests that malls could be used more as a pick-up point for merchandise after orders are made online.

The structure of rent could also change, Kini said, with malls charging retailers a multitier rent - in addition to current charges for square-footage and sales-based rent, foot traffic could be a factor as well.

But whatever the changes on the business end, socializing at malls isn't likely to change.

"Malls are what town squares were 70 years ago," said Jerry Katz, a St. Louis University professor who specializes in consumer behavior. "To have the right mix of stores, to keep (customers) coming back, that's much more of a threat than the Internet."

But mall owners aren't standing still. As with many industries, technology is expected to drive major changes at malls.

Two companies - MerchantWired, which is backed by several REITs, and Strateginet, backed by Retex, a retail technology buying cooperative, and other investors - are planning to set up Internet networks in malls nationwide. And MyShoppingCenter.com, based in Florida, is focusing on wiring strip centers.

The companies say private networks will help retailers increase productivity and better manage inventory. The companies can keep tabs on their employees through video cameras, which can be beamed directly to corporate offices. And retailers eventually could rent smaller stores, as inventory could be better managed through improved communications.