E-Commerce Advertising in Malls:
To Ban, Or Not to Ban?
by Judi Biederman
Hycel Properties Co., owner and manager of the Saint Louis Galleria, took on the role of David and created a Goliath of a furor when it attempted to prohibit the upscale mall’s tenants from in-mall advertising of corporate e-commerce operations. Finding that he had created an e-mountain out of what he thought would be an e-molehill, Hycel President Mark Zorensky cried “e-gads!” after he was stormed by worldwide criticism. Although he reversed his position, the aftermath of his debacle leaves questions that need to be answered as the retailing industry modems into a new millennium.
The Saint Louis Galleria has a total retail GLA of 1.18 million sq.ft. Anchors include Dillard’s, Famous-Barr, Lord & Taylor, and Mark Shale. Recently opened tenants include: April Cornell, Arden B., Brooks Brothers Women and M.A.C.
According to Shelly Schembre, director of marketing at the Galleria, Hycel neither set itself out to be viewed as the villain of modern trade nor did it expect the diatribe of censure that resulted from its so-called ‘e-com ban.’
“We issued a letter to tenants asking them to limit signage promoting e-commerce,” she describes, saying that Hycel management was worried that the promotion of e-commerce operations might take sales away from the mall. “It was really a move to keep sales local. Our intention was to promote our tenants; managers’ bonuses are based on sales and we have percentage rent agreements. We meant it as ‘they win, we win.’ ”
However, the only winner seemed to be the national media, which had a field day with the story. Schembre says, “The national press descended on St. Louis – CNN, ABC, The Wall Street Journal, The Today Show, and Tom Brokaw.” By example, WSJ headlines blared, “E-commerce ban stuns mall stores, Saint Louis Galleria outraged its tenants with a new in-store policy.” The story read, in part, “The Saint Louis Galleria informed its 170 retail tenants in a letter last week of a new policy prohibiting any in-store ‘signs, insignias, decals or other advertising or display devices which promote and encourage the purchase of merchandise via e-commerce.... the letter shocked some store owners and prompted a threat of litigation from one.”
With trademark WSJ objectivity, the story went on to describe Zorensky’s position that “the new policy addresses a deep concern of mall owners everywhere – the possibility of losing rental income to online sales.” It quoted Zorensky: “If a sale is rung up on the Internet, then it’s not rung up in the store... what we’re trying to stop is the retailer blatantly redirecting sales from the mall to their Web page.” The piece also discussed industry concerns about online sales returns being deducted from store sales and Internet sales circumventing state sales taxes.
Separately, Zorensky issued a formal statement explaining Hycel’s position:
“We are committed to continuing our long-term partnership between the mall property and our valued merchants. It’s been proven again and again that working together we both prosper. While e-commerce is a new transactional medium that is here to stay, it is important we protect our interest while initiating important dialogue.
“Saint Louis Galleria has leases with its tenants that reward both parties when tenant sales increase. We undertake considerable efforts to market Saint Louis Galleria and to bring people to the stores to drive sales locally. The stores benefit, as do we. Our primary interest is to maximize local store sales in our mall.
“Our tenant leases specifically require that the stores maximize their sales, from the stores’ premises. To the extent merchants route sales away from their mall location, it is in contrast to the mutually beneficial partnership established through the stores’ leases.
“We understand the Internet is a growing, viable distribution channel. Saint Louis Galleria wants to make this vehicle complementary.
“At present, some national retail companies may benefit from promoting, at the local level, an alternate sales and distribution channel. This may be detrimental to other retailers, and could be at the expense of the local employees and local economy. The mall and the space within the mall are an advertising medium, like a billboard. We want to ensure that that space benefits all mall tenants, not just those retailers with a strong e-commerce initiative.
“A long-term, mutually beneficial solution needs to be worked out where malls and each individual merchant can both participate in and prosper from online sales. We recognize the industry must address this issue so that everyone benefits: the mall, the stores, and the stores without an online presence.”
The statement seemed logical and gracious, but nobody seemed to be interested in working out any kind of solution, beneficial or otherwise. “We had such an overwhelming response that four days later the statement was retracted,” Schembre relates. Schembre says that Hycel got e-mail from all over the world, even from as far away as Brazil and China. “There was resentment from shoppers, too,” she says. “One e-mail compared us to old time buggy whip manufacturers, suggesting, ‘get with the times or lose.’ ”
Schembre says that many tenants complied with the statement and that it was never meant as a directive. “We were never going to kick them out. The policy was not absolute and there was no intention of enforcing it as absolute. We were just trying to come to a common ground. We take pride in our tenant relations and we got a black mark on this issue.”
Zorensky’s retraction read:
“We took action earlier this month, as part of an ongoing effort, to maximize sales for all retailers at Saint Louis Galleria. We felt if our stores redirected their shoppers to an alternate sales channel through e-commerce promotion, it would not only hurt the individual store sales, but all retailers at Saint Louis Galleria. It would also have an impact on the regional economy.
“Because of the magnitude of this issue, we have decided to change our position. We feel this issue will continue to receive a lot of attention, and this is something we all must address.
“We look forward to learning how retailers, shoppers, the shopping center industry and the online community can work together to develop an e-commerce strategy that works for everyone. We will continue to be supportive of this collaborative effort.”
Schembre says that Zorensky attended an International Council of Shopping Centers function soon afterwards. There, she claims, several mall operators verbally indicated their personal support for Zorensky and his position. But she points out that the support didn’t come publicly and it didn’t come in time to waylay a retraction. “No one was on our side and no one came forward to support us. Zorensky is a single property owner – we don’t have the resources to take on the world. We couldn’t handle the negative response.”
But history has a way of repeating itself. Schembre predicts, “This issue will come up again. The ICSC needs to address it.” According to at least one history book, David beat Goliath, but he wasn’t shooting from the ‘slings of outrageous fortune.’
For more information, contact Shelly Schembre, director of marketing, Saint Louis Galleria, 1155 Saint Louis Galleria, Saint Louis, MO 63117; 314-863-5500, Fax 314-863-1415; e-mail: shelly@saintlouisgalleria.com.