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MAY 9, 2005
How The Net Is Remaking The Mall To lure Web-savvy shoppers, retailers are turning to "lifestyle centers" The landscape of America is the store. Drive anywhere, and you will see mile after mile of mammoth malls, big-box retailers, and local supermarkets. There are more than 1.1 million retail establishments across the country, an average of one every three square miles. Now this sprawling tapestry of retail space is being rapidly rewoven. In 2004 developers poured $18 billion into new and renovated enclosed malls, open-air shopping centers, and warehouse stores, up 17% from the previous year. So far, 2005 is ahead of that pace, in part as a response to the continued strength of consumer demand. But there's something new going on as well: Bricks-and-mortar retailing is furiously recasting itself to compete in the world of the Internet. The Net now accounts for just over 3% of retail sales -- not including car dealers and gas stations -- but that number underestimates its impact on the way Americans shop. Going shopping used to mean visiting many stores to comb through merchandise to see what was available. That gave rise to enclosed malls where consumers could devote a day wandering among stores in comfort. These days, Americans are spending a growing part of their shopping time at the computer, comparing prices and looking for ideas. Even if the purchase is eventually made in person, the time spent online is cutting the time available for driving, parking, and walking through the mall. This development is propelling one of the biggest changes in the retail landscape in decades -- the shift from malls to so-called lifestyle centers. Springing up all over the country, these small, convenient, open-air retailing complexes are laid out to evoke the small-town shopping districts of a previous generation. They cost less to build and maintain than enclosed malls, which require huge expenditures on air conditioning and heating. Notes Purdue University retail management professor Richard A. Feinberg: "It is particularly tough these days for smaller retailers to justify the mall overhead costs without being forced to raise prices to prohibitive levels." Lifestyle centers are also more in tune with the rise of Net shopping. Because most have walkways and parking next to each store, they offer shoppers the ability to get in and out quickly -- a must when shoppers have already identified what they want through online browsing. Unlike enclosed malls, which are typically anchored by large department stores, lifestyle centers give more prominence to high-end restaurants, movie theaters, and other alternatives to shopping, such as strolling around landscaped paths. The aim: to keep busy consumers at the centers longer. "All this has to do with people wanting more experiences when they do have snippets of time," says Morgan Dene Oliver, CEO of OliverMcMillan, a San Diego developer that built and owns Glen Town Center, a $250 million retail development in Glenview, Ill. The International Council of Shopping Centers (ICSC) counts more than 120 lifestyle centers, with many more on the drawing boards. According to the Census Bureau, construction spending on uncovered shopping centers, including lifestyle malls, is running at a $10 billion annual pace, up 45% since 2000. Meanwhile, the number of old-style malls is expected to shrink from 1,200 today to perhaps 900 in the next few years, say ICSC officials. Others are even more pessimistic. "Malls are dying," says Roger D. Blackwell, a marketing professor at Ohio State University. The influence of the Net on retail real estate goes beyond lifestyle centers. Smart retailers are exploiting their Web savvy to bolster their bricks-and-mortar operations. Coldwater Creek Inc., a women's apparel retailer based in Sandpoint, Idaho, uses data from its online sales to decide where to build new stores, for instance. TOUCHY-FEELY None of the changes means the end of physical retailing, in the way some Net enthusiasts predicted in the 1990s. People still like to touch the fabric and try on clothes. And shopping is a social experience, "[filling] a need we have for community and for interaction, for physical contact," say David Rockwell, head of Rockwell Architecture, Planning & Design, a New York firm whose work includes designing the planned Xanadu retail-entertainment complex in northern New Jersey. And top-end malls, such as New Jersey's Mall at Short Hills and Minnesota's Mall of America, seem to have the glitz to keep pulling in shoppers. What's hurting many malls, though, is the new economic calculus of shopping. Suppose it takes a total of an hour to drive to an old-style mall, park, find your way to your intended store, and drive home. The value of that hour, as economists reckon it, is about equal to your average hourly pay -- about $30 per hour for managers and professionals. Since that $30 would probably cover shipping charges for a large online order, it becomes harder to justify the shopping trip."Going to a regular mall is something I have to do, not something I want to do," says Curtissa Coleman, a 30-year-old General Services Administration civil engineer in Riverdale, Ga. Instead, she spends more time at The Avenue Peachtree City, a lifestyle shopping center. Kristen Kratus, a 29-year-old marketing director at a housewares manufacturer, from Danville, Calif., typifies the trend. She avoids the hassles of mall parking by making half her purchases online. Most of the rest is done at Broadway Plaza, a lifestyle center about 10 miles away in Walnut Creek with easy access to parking. "It's more convenient," says Kratus, who has a 10-month-old son, Charlie. "I can buy things, take them back to the car, and then shop again." She says the center has a better selection of restaurants and attractive outdoor pedestrian walkways, making shopping more enjoyable: "I can walk around with Charlie, drink a coffee outside, window shop, and see what's out there. It's like being at a park." To attract the harried consumer, some retail developers are thinking out of the box. At the Glen Town Center, built on the site of a former naval air-traffic base, developer Oliver preserved an air-traffic control tower to lend a historical feel to the place. In the Las Vegas suburb of Henderson, Nev., the District at Green Valley Ranch boasts a casino at one end. Some retailers seem to understand how to navigate the changing physical landscape of retailing. Coldwater Creek, once solely a catalog retailer, has been opening up new stores at a rapid pace, often in upscale lifestyle centers. The women's apparel retailer also offers shoppers the ability to use Internet kiosks in its stores to order goods with free shipping. That enables the stores to carry only 35% to 40% of the merchandise offered in its catalogs, saving on inventory and reducing the physical space needed. Other retailers, such as Recreational Equipment Inc., the seller of outdoor gear, have also become increasingly sophisticated in terms of making physical and virtual space work together. At many of REI's 78 stores, staffers find that shoppers have been on the REI.com site to educate themselves about, say, buying tents before coming by to see the goods up close. Many buy goods on the site and arrange to have them shipped to a nearby store, saving a shipping charge. And when they arrive, they often pick up a few other items. "It's great for our store traffic," says Sally Jewell, chief executive officer of the $900 million-a-year national retail cooperative. The era of the enclosed mall lasted roughly half a century, an eternity when it comes to this fashion-driven industry. Today, the pace of change is much faster, as broadband access spreads and as Americans get more comfortable with shopping online. Physical shopping centers of some type will always have their place. But as the virtual world of retailing evolves, so will the physical -- and that process has just begun.  By Joseph Weber, with Ann Therese Palmer, in Chicago
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