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Click and Spend

Will e-commerce dictate the future of malls?

Do you find you are doing more shopping from your computer these days? Does it seem that Amazon.com has become something of a second home for you and your family?

If your shopping habits fit this picture, you are not alone. Consumers throughout the world are increasingly turning to computers or mobile devices when they are hit with an urge to buy, whether the object of their pursuit is clothing, electronics or even groceries. And as they shop screen after screen filled with product images, these consumers may be writing the epitaph of traditional retail malls.

The idea of locating groups of retail stores together under a single roof took off in the United States during the decades following World War II. In the prime of their popularity, retail malls formed the social center of many communities, offering not just stores, but cafés and food courts, specialty kiosks and appealing hang-outs for teenagers.

Their ability to lure consumers also made malls popular among retailers, with brands big and small clamoring for coveted locations in the centers. But over time the trend became too much of a good thing. As eager developers opened more malls, the market became overbuilt. Centers built too close together had to compete harder. They began to cannibalize one another’s business, and mall owners undertook pricey renovations in an effort to make their property stand out. Into this competitive environment came a threat few had foreseen.

In its early stages, online shopping was mainly the province of technological early adopters – people who simply wanted to see how an online purchase might work and size-up its long-range prospects. But with the advent of revolutionary new retail business models, led by such now-household names as Amazon, the future of retailing began to become clear. Shoppers quickly overcame their preferences for being able to see, hold or try on merchandise in a store, particularly as online retailers began to dangle perks such as free shipping and free returns.

Today, brick-and-mortar retail stores are closing at a record pace, according to an April 21 report by The Wall Street Journal. Retailers in the first quarter of this year announced more than twice as many store closings as they did in the same period in 2016, and close to 10,000 locations could fall by the end of the year, with hundreds of stores set for shuttering by national chains such as Payless ShoeSource Inc. and RadioShack Corp.

“There is no reason to believe that this will abate at any point in the foreseeable future,” business analyst and former retail executive Mark Cohen told the Journal.

 

Regroup & Rethink

Challenges from e-commerce aside, retail malls still have a future, according to an assessment by marketing consultant McKinsey & Company.

To avoid becoming a “historical anachronism,” the McKinsey report says, mall operators should “expand their horizons of what a mall can be.” In essence, malls must find ways that go beyond shopping to appeal to consumers. Instead of seeing themselves as real estate brokers, malls should consider themselves “providers of shoppable entertainment,” the report says.

 

At least 10 retailers, including apparel company Limited Stores Co. and electronics chain Hhgregg Inc., have filed for bankruptcy protection so far this year. While a variety of factors, including the rise of “fast fashion” (styles that move quickly from runway to store and are popular with young online shoppers), are contributing to the trend, e-commerce is the monolithic culprit that’s knocking physical stores off their foundations.

Evidence of the trend is visible in the greater New Orleans area. Retail malls in Jefferson Parish, long a leading regional center for shopping, have seen declining sales, according to sales tax collection reports. A recent report showed that February sales revenue at Jefferson malls was almost 10 percent lower than year-earlier totals.

The report of the sales decline followed word that Macy’s planned to close its store at The Esplanade in Kenner, Kmart would shutter its Elmwood Shopping Center store and Sears would vacate its Oakwood Center spot in Gretna.

“We continue to believe the malls are suffering from a shift in the preference of many citizens away from the traditional ‘covered-mall’ shopping experience, as well as internet sales,” the parish sales tax report stated.

In Orleans Parish, where existing malls tend to be specialty complexes that cater to tourists and visiting shoppers as well as locals, the retailers may be somewhat more sheltered from e-commerce encroachment. The Shops at Canal Place, for instance, which is home to a large Saks Fifth Avenue store, is bolstered by the periodic influx of out-of-town shoppers who come to the city to attend big conferences at the Ernest N. Morial Convention Center. The Outlet Collection at Riverwalk, located steps away from the convention center, also enjoys the benefits of such traffic.

But local retailers still face many of the same challenges as their brethren elsewhere. They must continue to offer the quality in-store shopping experience that many customers expect while also catering to those who prefer to do their shopping online, where profits are inevitably lower.

Among other indicators of retailers’ difficulties, their local story is written in sales trends for retail space. The median asking price per square foot for retail commercial properties in the New Orleans area declined 18 percent in 2016, according to retail data aggregator LoopNet. The falling demand for available retail space shows that fewer companies are willing to risk an investment in floor space in a market where fewer and fewer consumers are inclined to mix it up at the mall.
 


 

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