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Xtreme Retailing


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Xtreme Retailing

Stores fight the online onslaught

Sixteen-year-old Mike Carlson of Fontana, Calif., was ready when Vans Inc., a Los Angeles-based sporting goods retailer, opened a 60,000-square-foot, $4 million skate park and off-road bicycle track at the Ontario Mills Mall near L.A. last month. Within the first two weeks, Carlson had logged a half-dozen visits, shelling out $14 each time for two hours of sheer skating bliss. "All malls should have this," says the demographically desirable teen. "They kick us out of everyplace else to skate--they might as well make it legal."

Mike may very well get his wish. The regional shopping mall, venerable symbol of suburban prosperity for the past 40 years, is in the midst of a reinvention. And in the new shopping paradigm, fun counts.

As the Christmas shopping season enters peak frenzy, online retailing is grabbing headlines. With an explosion of new Web sites, almost anything for sale in a shopping mall can be bought by computer--in many cases, faster and cheaper than in a store. That makes e-tailers a potent threat to bricks-and-mortar stores, even though online will account for less than 1% of total sales this year. But retailers are fighting back. How? With the one weapon in their arsenal their virtual counterparts simply can't match: reality. "You can't sit on Santa's lap on the Internet," notes John Konarski III, senior vice-president of the International Council of Shopping Centers, a New York City-based trade group. "Nor does Amazon.com have coffee and chairs."

But bricks-and-mortar retailers aren't stopping with a coffee bar and the occasional in-store promotion. In the new world of Xtreme Retailing, stores are combining the speed, convenience, and immediacy of e-commerce technology with the thrills of an amusement park. How? Essentially, by taking their core product or image and turning it into an experience. Thus, Vans becomes a skate park and not just a place to buy sneakers, while Bass Pro Shops becomes a fishing pond and archery range and not just a sporting-goods store.EMBRACE THE FOE. Assuming it's enjoyable enough, a unique experience can be packaged and sold just like books and undershirts--or at least that's what the Xtreme retailers are banking on. B. Joseph Pine II, co-author with James H. Gilmore of The Experience Economy, says saleable experiences come in four varieties: entertainment, education, esthetic, and escapist. "Experience means to spend time and, increasingly, to spend money to spend time. If retailers just provide a completely mundane experience, people won't come," says Pine.

Increasingly, retailers also are beginning to embrace the enemy, making the Internet a part of their bricks-and-mortar operations. Borders Books & Music will soon offer in-store kiosks allowing shoppers access to its immense online inventory. Mall developer Simon Property Group Inc., based in Indianapolis, is testing an electronic "zapstick" as a tool to help time-squeezed shoppers find merchandise more efficiently. In the new world of retailing, stores and malls are trying to sell themselves as places to spend leisure and recreation time instead of just shopping time. Those that can't offer either a great experience or great service could well find themselves squeezed out.

Even the dot.com retailers are taking notice. eBay Inc. just signed a deal to stage live auctions in selected malls, while Gateway Inc. is building real-world stores to give its brand some three-dimensional reality. Jeffrey P. Bezos, chief executive of Amazon.com and a passionate believer in online retailing, concedes that traditional stores have a few advantages. "The physical world is still the best medium ever invented," he says. "What's going to happen is that stores are going to get more entertaining. The quality of the sales associates is going to go up. Stores are going to get cleaner. Every dimension you can imagine of making a physical store better is going to happen."

The real question, though, is whether those enhancements will induce shoppers to spend more money. Some of the earliest forays into entertainment-based selling, such as NikeTown and Planet Hollywood, have faded. Many blame the static nature of the experiences they offered. After all, once you've seen the memorabilia, what's left to do? It's too early to tell how the newer efforts will fare, but proponents say they offer a richer, more intense, and more varied experience that will help them endure.

Indeed, at one of the earliest shopping-mall-as-theme-park creations, The Forum Shops in Las Vegas, where Atlantis rises and falls on the hour and Roman gods cavort in animatronic splendor, shoppers can't seem to get enough. The Forum has passed its seventh birthday and still is racking up a spectacular $1,200 per square foot in annual sales, compared with a national average of about $300.

In fact, the trend toward experience-based retailing--or "shoppertainment," to use a word trademarked by super-regional mall developer Mills Corp.--has been building for some time. The Internet is the latest threat, but the rise of strip malls, superstores, and giant discounters such as Wal-Mart Stores Inc. already had made change imperative for many traditional retailers. A recent study by Deloitte & Touche reports that not only will 80% of consumers shop at discount department stores this holiday season but that they plan to spend the most money there.

All of which has led to a fundamental rethinking of exactly what it means to "go shopping"--and what a mall should be. "The long-term players in our business should be in the `out-of-home-entertainment' business," says Mark J. Rivers, executive vice-president and chief strategic officer at Mills, a developer noted for large, flashy malls, such as Ontario Mills. "We see ourselves more as a Disney-type venture than a mall. Vans Skatepark is to Ontario Mills what Space Mountain is to Disneyland," he says.

It is an apt comparison. In the Disneyesque lingo of the New Retail, shoppers have become "guests," shopping has become an "experience," and malls have become "entertainment centers" with "communities." Everything has become more friendly, fun, and frenetic. "We want it to be loud. We want to take it over the top. We want to get off the couch," says Rivers.

Instead of hewing to the time-honored formula of building a mall around a big department store anchor, developers have started searching for fresher, more offbeat stores that offer better opportunities for adding entertainment. "We see ourselves as retail bounty hunters," says Laurence C. Siegel, chairman and CEO of Mills. "There are no Macy's at our centers. We want to create destination retail." Siegel seeks out billboard tenants such as Bass Pro Shops Inc. and Gibson Musical Instruments' Guitar Showcase, which will open at Opryland Mills next summer. Customers there will be invited to watch their guitars being built.

Mixing entertainment and retail is hardly a new idea. The cineplex has been a mall staple for at least the past decade, and fads such as pool halls have come and gone. Then, in 1992, the same year it opened The Forum, Simon Property Group opened Mall of America, a giant three-ring circus of a megamall in Bloomington, Minn. Faced with the daunting task of filling 400 retail spaces during an economic downturn, Simon sought out offbeat retailers, many of whom would have been too small or new to have qualified for space under normal circumstances. Bolstered by such entertainment anchors as Camp Snoopy, an indoor amusement park, and Underwater World, an aquarium with walk-through tunnels, the mix proved to be a hit. The mall attracts 43 million visitors each year, and sales per square foot average $540.THE KIDDIE CARD. So why didn't other malls and retailers copy this formula sooner? Perhaps because there was no real pressure to until now, when consumers have so many choices. Mall developers today are eager to sign leases for stores such as the Wizards of the Coast. Wizards, owned by Hasbro Inc., is known for fantasy games, collectible game cards, and now Pokemon products. About a third of the space of a typical 3,000-square-foot Wizards store is devoted to a game room, complete with tables for card trading and tournaments, and a bank of networked computers where kids can play video games with one another. Although card trading is free, computer time runs $7 an hour.

For many parents, that's a bargain. Karen Robinson feels safe leaving her 10-year-old son Vaughn to play while she does a little shopping in Woodfield Mall in suburban Chicago. "He's supervised. And he's on his best behavior," she says. Thus the store gains Vaughn as a customer and the mall gains his mother.

When Robinson comes back to pick up her son, she could have a hard time leaving empty handed. The game room is strategically located at the back of the store so kids and their wallet-toting parents must first pass through a packed retail area. Wizards Senior Retail Marketing Director Karin Kriznik reports that sales at the company's 16 stores are running in the neighborhood of $1,000 per square foot. Some 50 more stores are planned for 2000. "A year and a half ago when we began opening the stores, people thought, `What's this about?' Now we're the wave of the future," laughs Kriznik.

To make that experienced-based formula work, the experience has to reflect the brand. The Sam Ash music store in Ontario Mills offers shoppers their own in-store performance space and the instruments to use in it. The St. Louis-based Build-A-Bear Workshop chain lets "guests" spend hours creating and customizing stuffed animals. American Girl Place, the new Chicago flagship store of the doll cataloger owned by Mattel Inc., offers its signature line of historically inspired dolls and related merchandise as well as a themed musical revue and cafe. This is shopping as an event.

It also is brilliant branding. As the Internet intensifies competition, building a strong brand identity has become more critical than ever for retailers, e-tailers, and even for malls. And brand-based entertainment isn't just for kids. Bass Pro Shops, a chain of outdoor-sports equipment stores based in Springfield, Mo., offers its grownup clientele giant aquariums, waterfalls, trout ponds, archery and rifle ranges, putting greens, and classes in everything from ice fishing to conservation--all free. "You won't see everything, even if you're here for two hours. And we change constantly," says Jeff Baars, general manager of the Bass Pro store in Gurnee Mills, outside Chicago.

Bass Pro was one of the first retailers to mix over-the-top displays and events with retail when it opened nearly 19 years ago, which speaks to the strength of the concept. However, until Mills "discovered" Bass Pro in the mid-1990s, it had opened only two stores. Since then, it has opened another seven, mostly in Mills malls, with three more planned for next year. The stores have attracted a loyal following: At the Gurnee store, customers routinely deliver trophy fish they've caught to a staff aquaculturist to add to the store's 27,000-gallon tank. The closely held company does not release sales figures, but it proudly notes that its Springfield store ranks among Missouri's top tourist attractions.

Meanwhile, San Francisco's Metreon, located next door to the Museum of Modern Art, is also shaping up as a tourist favorite. Opened last June after five years in development, it takes branding to a new level. Billed as a Sony Entertainment Center, it is essentially a $115 million, three-dimensional ad designed to give form to a corporate image--in this case, to associate the Sony Corp. name with such adjectives as high-tech, imaginative, and fun. With 15 movie theaters, an IMAX, and themed attractions such as a re-creation of the classic children's storybook Where the Wild Things Are, entertainment dominates retail.REAL-WORLD ADS. But even the retail is entertaining. Sony operates the Sony Style, Microsoft SF, and PlayStation stores, where software is out of the box and everybody is encouraged to play. "Sony Style and Metreon are important branding statements for Sony generally, but this also works as a business," says Metreon General Manager Kari Novatney. The focus at the stores isn't so much to sell as to demonstrate--and to listen. "It gives businesses a chance to directly connect with customers and hear comments about what's missing," says Novatney. So far, attendance is running almost twice projections, at about a million visitors per month, and similar developments are in the works for Berlin and Tokyo.

The power of the physical world as a place to promote a brand has not been lost on e-tailers, who have discovered just how hard it is to stand out in cyberspace. That's why dot.coms are now stampeding into such traditional ad venues as TV and magazines. Some are also now figuring out that there's nothing like test-driving the merchandise to close a sale, especially for customers who may be intimidated by technology.

Gateway, which began as a cataloger and developed into an e-tailer, was among the first to see the value of a bricks-and-mortar presence. "Three years ago, our research showed that 25% to 30% of our market would buy only in stores," says Ed McPherson, vice-president of marketing for Gateway Country stores. The 8,000-square-foot showrooms--customers still have to buy online or over the phone--also act as de facto ads. "For branding purposes, it's been great," says McPherson. Although Gateway will not release figures on store sales, McPherson terms it "a significant part of our business." Another 200 stores are planned.MIXED MEDIA. Even eBay, one of the most popular sites on the Web, is exploring ways to extend its brand into physical space. A live simulcast holiday auction scheduled for Dec. 11 at Mills malls in Virginia, Illinois, and California is a test of what could become a regular event. "Even though we're bricks and they're clicks, we found we had a lot more in common than we thought," says Mills' Rivers. And they have complementary needs: Mills wants a Web presence, and eBay hopes to connect with store shoppers who haven't tried them online yet.

Mills isn't alone in trying to figure out how to harness the Internet. A glitzy entertainment experience may bring shoppers in, but a long line, a long trek home, or discovering that items are out of stock can keep them from buying. Since those are precisely the kinds of real-world annoyances online shopping is supposed to eliminate, stores are rapidly adapting technology to the selling floor. The new model that's emerging is a hybrid that tries to combine the fun of real-world shopping with the ease of virtual-world buying.

Borders, for example, is installing in-store kiosks called Title Sleuths that effectively bring the inventory advantage of the company's Web site to the store. This way, shoppers can browse the shelves or kick back with a cup of latte at the coffee bar without giving up any of the benefits of online shopping. It remains to be seen, however, how customers will respond when they discover that Borders' books online are generally cheaper than those on shelves--a result of a price structure designed to compete with Amazon.com, not the bookstore across the street.

Electronic kiosks are popping up all over malls, too, in what can only be described as a beta-testing frenzy. Taubman Centers Inc., another mall developer, just launched CENTERLINQ in six of its 28 upscale properties. In exchange for answering a questionnaire, shoppers receive targeted information on mall sales as well as bar-coded coupons good at mall stores, which they can gain access to through a personal mailbox on the CENTERLINQ system. Eventually, shoppers should be able to consult their mailboxes from a home computer.

The system also provides malls with a way to attract corporate sponsors. "We really began to pursue CENTERLINQ as a communications device," says David Goldberg, vice-president of sponsorships at Taubman. "We walk literally hundreds of millions of people through our venues--it's bigger than a sporting event or a concert. Now, we have a way for our sponsors to speak to our visitors."

Simon, the nation's largest mall owner, is trying out several new services. Its subsidiary clix'nmortar.com has been testing FastFrog.com at two suburban Atlanta malls for the past month. The program equips teens with a special bar-code-reading wand that allows them to scan items that catch their fancy. The teens return the wands to a kiosk called The Pond where the bar-code information is downloaded onto a Web site. Teens can log on at home, adjust their lists, then see whether Mom, Dad, or anyone else they can think of will buy them the goods.

A second clix'nmortar product, YourSherpa.com, which is aimed at time-starved adults, began testing last week. Shoppers provide credit-card information when they pick up their wands, then go store to store zapping items they either want to buy or consider. When they're done, they return the wand, pay for the items they decide on at the kiosk, then arrange for delivery. "This gives them a way to compare products before buying. And there's no more schlepping bags around the mall," says Melanie Alshab, president of clix'nmortar.com. And unlike the Net, shoppers can touch and try on the merchandise--and take it home immediately.LIVE AT THE MALL. Though less high-tech, Banana Republic is also playing up the royal treatment. It's offering a free delivery service this holiday season to any shopper spending at least $300 in its New York City stores. The flagship store in San Francisco gives free rides home to shoppers who spend at least $100. Free cell-phone recharging is another new perk. "People have the option of sitting at home at the computer. If people are going to get up and come visit a store, we'd better make it worth it," says Amy Schoening, senior vice-president of Gap Inc.'s Banana Republic unit.

But perhaps the most ambitious program yet is Simon Live Media, a co-venture between Simon Property Group and Time Warner's Turner Broadcasting System Inc. announced last month. It aims to merge the experience of retail and e-tail through a network of kiosks, broadcasts, Web sites, print media, and live entertainment. "You need to position as an entertainment destination, not just a shopping experience. We are a medium," says Drew Sheinman, senior vice-president of marketing and business development for Simon.

To show how the venture might work, Sheinman uses the example of a cooking demonstration at Mall of America that would simulcast to 60 or 70 of Simon's other properties around the country. Additional live events at the mall might be used to customize programming to each market. Shoppers at home could go online to watch a Webcast that would also give them the ability to point, click, and buy products off the screen. Advertisers could include mall sponsors such as Ford or Pepsi, retailers selling content-relevant merchandise, or even manufacturers. The event itself would be promoted in Simon's mall magazine, S. With some 2.5 billion shoppers visiting its malls annually, Simon will deliver the audience while Turner provides programming and technical expertise. Steven J. Heyer, president of TBS, sees a potential to cross-promote other Time Warner properties, from live events at WB stores to mall promotions for Time-Warner movies. "There are endless ways we can connect with people," says Heyer. Testing is planned for spring 2000.

Far from spelling the death of the mall, the Internet may have breathed new life into these shopping stalwarts. While the number of new mall developments is down to about a half dozen per year, the ones that are going up offer everything from ice fishing to mountain biking. Just try doing that online.By Janet Ginsburg in Chicago, with Kathleen Morris in Los Angeles and Bureau ReportsReturn to top


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