“The Call of the Mall”: Rethinking Retail
04.15.22
Deep in the New Jersey Meadowlands, overlooking Jimmy Hoffa’s watery grave, squats a 3 million square foot shopping mall. “American Dream,” as it was unironically named, was once dismissed by former Governor Chris Christie as “the ugliest damn building in New Jersey and maybe America.” (Mall developers defended themselves, accusing early critics of “judging the Sistine Chapel after Michelangelo put on the first coat of paint.”)
One of a handful of new enclosed malls built in the United States since 2007, the megamall finally became a reality in 2019 after a 20-year-long political saga, cycling through a kaleidoscope of investors, governors, lenders, and developers. Opening its doors just months before COVID-19 hit, one executive at Triple Five Group, its current owner, confessed that “it would have been much better if American Dream would have burned down or a hurricane had it, financially, because we would have been covered by insurance.”
This week, despite a reserve fund balance of $820.23 cents (as reported by Bloomberg in February), American Dream unveiled its 300-foot observation wheel overlooking the swampy Meadowlands, Hudson River, and New York skyline. We attended the grand opening on Wednesday.
“Each gondola is outfitted with a 3-foot TV screen, though none appear to be working yet,” observed one blogger speaking into his GoPro. “Thankfully, the all-glass gondolas are temperature-controlled, but it does feel unusually toasty in here for April.” He resolved to return for an evening ride to compare the relative experience of night views.
Is American Dream doomed to extinction? The development wages a precarious bet on the future of retail, opening against a glutted backdrop of dead malls, anemic performances, and two decades of waning public relevance. What series of miracles can resurrect retail for the American consumer?
Retail as Media Channel
Malls, once the bulwark of suburban social life, are now widely perceived as retail wastelands that failed to adapt to a digital reality. Even their original architect, Victor Gruen, despised his own creations. An ardent socialist with a vendetta against cars (“Their threat to human life and health is just as great as the exposed sewer,” he once said), Gruen first envisioned malls as open-air oases similar to ancient Grecian shopping villas, teeming with merchants, stalls, and life.
Instead, what resulted were “big walls with little mouse holes,” faceless beige boxes with no sense of character or locality. Disgusted by the industry prototype, Gruen publicly disavowed malls in his final years. “I am often called the father of the shopping mall,” he said. “I would like to take this opportunity to disclaim paternity once and for all. I refuse to pay alimony to those bastard developments. They destroyed our cities.”
But today, some brave retailers are still taking the plunge, optimistically setting up shop even when faced with the “apex predators” of Amazon, Alibaba, Walmart, and JD.com. Their best hope for survival, predicts retail futurist Doug Stephens, is to stop thinking of themselves as retailers and to start thinking of themselves as media channels. Physical stores, rather than acting as brand distribution centers that live or die by sales volume, will reconceive of themselves as an effective marketing arm for drawing customers into the larger brand. “Products will simply be the breadcrumbs used to attract legions of new customers, who then become entrenched in the life-encompassing ecosystems these companies have constructed,” concludes Stephens.
Many retailers have started experimenting with this model, fully embracing their new identity as part-entertainer, part-experience builder, part-store. Ben Kaufman, former CMO of Buzzfeed and co-founder of Camp, Burlington Mall’s hottest new toy store, doesn’t identify his company as a toy store. Instead, Camp presents itself as a “family experience company,” providing a “rotating themed experience” while offering “a seamless blend of play and product.”
Kaufman admits that Camp’s goal is to inspire ritualistic and obsessive behavior. Camp employees were plucked straight from Broadway sets, lending the store a “black-box theater” feel. Twenty percent of the store is devoted to stocking toys, while the rest of the store is hidden behind a Magic Door which is opened to reveal ticketed in-store events and themed experiences that brands can sponsor.
“We write a story. That’s the way we design these experiences,” explained Kaufman. “We have a linear path through our store. You open the Magic Door, and we’ve set the stage. For cooking camp, you walk through a set of fridges, and then you wind up in the farm, and you follow the evolution of food from the farm.” But Camp’s largest asset, according to Kaufman, is a repeat audience. “We have an audience that comes on a regular basis to hear the messages that we share.” He adds, “And that’s a media business.”
Localized Micro-Retailers
Some retailers, appealing to customers’ thirst for novelty, have focused on providing customized, highly distinct environments for a revolving lineup of brands rather than the fixed storefronts of yesteryear. This makes them particularly attractive to micro-retailers, which thrive on low rents, small spaces, and short-term leases. In the future, according to Inside Retail, complimentary businesses might band together to reduce overhead costs and rents: “We might start to see spaces with a mix of uses like ‘a bike repair and juice bar’, ‘a dry cleaner and shoe care’, ‘custom furniture and hi-fi’ that, despite their miniature size, could easily become small social hubs, offering not just goods for sale, but a whole world around that.”
Matt Alexander, founder of Dallas-based Neighborhood Goods, preaches that his core mission was to build a “new kind of department store,” where, “rather than having [a] fixed landscape of racks and seasonal products, instead it would feature this ever-changing landscape of different brands and brand activations, from all sorts of different companies, not just the direct-to-customer crowd.” By theming each department store according to its neighborhood of origin, every venue has a distinctive local flavor unique to its respective community (for example, Austin takes its inspiration from iconic hotel designer Liz Lambert, whereas Chelsea Market draws on its industrial heritage).
Some brands have eschewed products entirely, opting in favor of a more capital-light, retail-as-a-service model. Nordstrom Local, a new type of store rolled out by Nordstrom in the past few years, has no inventory. Instead, it offers “online order pickup and return, style advice, tailoring/alterations, beauty services, and merchandize that can be delivered to the Local location within a few hours.” By offering local fulfillment centers, brands hope to compete with the 48-hour delivery window set by Amazon Prime.
Platform or Mall?
If individual retailers are reimagining their very business model, what would a contemporary mall that houses them all look like? Probably more like a television production team, says Stephens, than any traditional mall management team today. “Just as HBO’s role is to promote the quality and uniqueness of its television and movie lineups, the role of the shopping center as a media network is to create unique programming, special events, and community gatherings that bring audiences to each retailer’s individual show.” Traffic generation, once the responsibility of individual stores, will become the principal concern of the host.
The physical space itself will have to change too. “To say that a shopping center should be ‘a real place’ sounds obvious, but the truth is that many of today’s shopping centers are monolithic concrete boxes surrounded by a sea of asphalt,” writes Stephens. While a predictable environment has appealed to generations of older mall walkers, it does little to excite the paying younger crowds. American Dream is innovative in that it devotes nearly 50% of the space to entertainment-based activities, including a water park, theme park, and, most recently, the Dream Wheel. However, it hardly provides a “plug-and-play” platform, where modular design allows merchants to dip in and out with greater flexibility.
If real change is to be sustained, many believe that legacy retailers will need to upend their traditional revenue model. Rather than basing rental agreements solely on traditional sales metrics and leases, retailers will have to reassess the value of customer acquisition and find a way to directly measure it.
“It’s difficult for legacy retailers to change their thinking on design, largely because measures for success are outdated,” says Kaufman. “You’ve seen this so many times in the past. Retailers start Skunk Works and stores of the future and innovation labs, but when push comes to shove, those initiatives are going to be measured on the same metrics that the core business is measured on, and when you do that, it’ll never be apples to apples. Because they can’t quantify the cool thing, the cool thing can’t ever live there.” As a result, Kaufman’s outlook for legacy retailers is hardly optimistic. “I don’t think there will be many incumbents, outside of the Walmarts of the world and those providing essential services, that will survive.”
But, he believes that, when the dust falls, a more interesting retail model will emerge. “At the highest level, retail is going to go from a utility to something that’s more entertainment-based and be much more based on discovery than the transaction. And I can’t wait for that.”
About Colbeck: Colbeck is a strategic lender that partners with companies during periods of transition, providing creative capital solutions to meet their evolving needs. You can reach the team at inquiries@colbeck.com.
