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Big Malls Spending Big Bucks in Fear of Web
By Mark Borsuk
The big mall developers fear losing the hearts and minds of shoppers and merchants to cyberspace. Unless they can protect store sales, they risk owning legacy assets. In response, developers are building mall web sites to defend earnings and avoid Wall Street’s wrath. Their counter-insurgency defense has all the hallmarks of Viet Nam’s strategic hamlet program.
Direct competition to malls from online buying seems unlikely. The malls had their best year in 1999 and are well fortified against cyber-subversion. Unlike the big box and power center retailers, most mall stores offer experiential goods requiring customers to touch and feel the merchandise.
Despite their inherent advantages, rising rents and higher occupancies, the publicly traded companies found their shares discounted by a whopping twenty-five percent from the value of the underlying real estate last year. Instead of rewarding them, Wall Street went negative. The owners discovered irrational despair was part of the price of going public.
The developers are fighting back with initiatives to reassure shareholders their malls are not legacy assets in the new economy. So far, the market is responding favorably to efforts like
www.clixnmortar.com and mallibu.com that showcase individual malls and tenants. Providing broadband service for retailers is another plus.
A successful campaign will make the mall a database and monetize the click stream. This is the light at the end of the tunnel for developers. Today, they can only dream of capturing data from some of the billions of yearly visitors. The prospect of data mining online shopper information could ignite share prices.
However, investors must ask, can adding a web site to a mall generate any meaningful income or just result in a higher body count? Making a mall’s home page the starting point for visitors requires owners to emotionally link their properties to shopping habits and then for shoppers use the mall’s home page to reach retailers. Capturing the shoppers’ hearts and minds in cyberspace will be a difficult task.
The necessary prerequisite for creating a successful mall home page is recognition. This requires branding the owner’s property. In the case of the best regional and super-regional malls, visitors expect a clean, safe and entertaining environment. What primarily differentiates the malls is tenant mix. In a sense, the mall is a stage and the merchants are the actors. The shoppers come for the show, not the theater owner. This illustrates why developers find it difficult to engender loyalty and brand recognition from mall visitors.
An even more tenuous assumption about branding is its ability to drive traffic to a mall’s home page. In the physical world, developers create value by aligning the interests of shoppers and retailers. They build a convenient location for customers to visit merchants. However, in cyberspace the developer creates
an obstacle for shoppers by forcing them through the mall’s home page.
Developers argue their online model expands the retailer’s reach by offering a new way to attract customers. This seems unlikely since in many cases shoppers already know the retailer’s web site.
If developers are to monetize the click stream, how can they do so?
Instead of offering fluff like online wish lists, developers need to offer real value to shoppers, like a free ISP. In less than six months Kmart’s BlueLight.com grabbed three million subscribers and claims forty percent are new online. Providing free Internet service would give visitors an incentive to register and begin shopping from the mall’s home page. Merchants could benefit by an incremental increase in online traffic. Offering a free ISP is a powerful way to encourage shoppers and merchants to support the developer.
Another idea to enhance the click stream is to incubate retailers. The quid pro quo is exclusivity. Instead of maintaining an independent web site, shoppers would reach these innovative merchants through the mall’s home page.
Capturing the click stream requires developers to abandon the strategic hamlet program in favor of initiatives like offering a free ISP and nurturing hip merchants on the mall’s home page. If not, they face another ambush in the free fire zone.
Mark Borsuk, a property attorney and retail leasing broker, is managing director of the Real Estate Transformation Group in San Francisco.
mark@borsuk.com
415 922-4740
Fax 415-922-1485
1626 Vallejo Street
San Francisco, CA 94123-5116
Copyright (c) 2000 Mark Borsuk. All Rights Reserved.
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