The Future of the Shopping Malls - Essential Guide

Posted by Manreet Brar on October 21st, 2022

Officially shopping malls are “one or more buildings forming a complex of shops representing merchandisers, with interconnected walkways enabling visitors to walk from unit to unit.”1 Unofficially, they are the heart and soul of communities, the foundation of retail economies, and a social sanctuary for teenagers everywhere. In recent decades, the concept of the shopping mall, which originated in the U.S. and became a full-blown modern retail trend there in the post-WWII years, has proliferated across the globe. The five largest malls in the world now reside in Asia. China’s New South China Mall in Dongguan stands at the top of the heap with 2.9 million square meters of space.

Despite its ubiquity, the mall as it’s been conceived for the last half century, is at a critical inflection point. A storm of global trends are coming together simultaneously to cause malls to change their role in people’s lives. No longer are they primarily about shopping. Consumers visit malls look for experiences that go well beyond traditional shopping.

The trends helping to create this change include changing demographics, such as an aging population and increased urbanization, which means more people living in smaller spaces and a greater need for public spaces to socialize and congregate. In this environment, malls offer a welcome watering hole, especially in cities where other public spaces are not safe. Sustainability concerns are causing some consumers to prefer mixed-use developments where they can live, shop, and work within walking distance instead of getting into a car and driving to a crowded suburban mall. The growing middle classes in Latin America and Asia maintain a strong association between consumption and pleasure, driving the need for more engaging shopping experiences. And finally, the e-commerce revolution and the rise of digital technologies are fundamentally reshaping consumer expectations and shifting the function of stores toward useful and entertaining customer experiences.

As these trends advance globally, they are forcing mall operators to rethink how they conceive and operate their properties. This identity crisis is most intense in the U.S., the country that pioneered malls and has the most malls per inhabitant. Thanks to a continued economic slowdown and rapid advance of the digital revolution, the U.S. mall industry is retracting and facing high vacancy levels. Websites such as collect pictures of weedy parking lots and barren food courts, and try to explain how once-thriving shopping centers began to spiral downward.  

In the face of these considerable challenges, malls seek to stay relevant, drive growth and boost efficiency. We see successful players investing along three key fronts.

1. Differentiating the consumer offering with a focus on experience and convenience.

Online shopping provides consumers with ultimate levels of convenience. Malls will never be able to compete with the endless product selection, price comparisons, and always-on nature of online. Nor should they try. Instead, malls need to move in a different direction, away from commoditized shopping experiences and toward a broadened value proposition for consumers.

Innovative malls incorporate value-added elements that attempt to recast the mall as the new downtown, including concerts, arts centers, spas, fitness clubs, and farmer’s markets. These services provide a level of leisure and entertainment that can never be satisfied online. Xanadu, a mall 30 km from Madrid, has gone out of its way to provide the means for parents to spend quality time with their children. The mall features a ski slope, go-karts, balloon rides, bowling and billiards. Similarly, the Mall of America in Minnesota has an underwater aquarium, a theme park, and a dinosaur walk museum. For instance, a new focus on leisure and entertainment is driving growth in Brazil. Revenue coming into malls from these offerings grew 41 percent in 2013 compared to 2012.

An emphasis on fine dining and events is also helping to make malls the hub of the local community – a place to share quality time with friends and family, not just wolf down a meal at the food court. The King of Prussia Mall, located 30 km from Philadelphia, has a Morton’s Steakhouse and Capital Grille. The Crystal Cove shopping center in Newport Beach, CA has more than a dozen upscale restaurants, including Tamarind of London and Mastro’s Ocean Club.

On the tenant mix front, innovative malls are strategically rethinking the types of stores that consumers will respond to. Anchor tenants that drive traffic are still key, but we also see a new emphasis on a curated mix of smaller stores that add a sense of novelty to the mall offering. Additionally, some malls are making greater use of temporary, flexible spaces that can accommodate different stores over time. Pop up stores, showroom spaces and kiosks give customers a sense of the unexpected and give them a reason to treasure hunt.

Finally, malls are overcoming the commoditization problem by focusing on specific consumer segments and/or creating specific zones within the mall that allow consumers to find an area that caters to them. In the Dubai Mall, for instance, “Fashion Avenue” is dedicated to luxury brands and services tailored to the upscale customer, including a separate outside entrance and parking area. In the 7-story CentralWord mall in Bangkok, home décor is on the 5th level, technology on the 4th, and fashion apparel on 1-3. This approach also represents a way for malls to ensure that customers don’t get lost inside the ever-increasing square footage of malls.

2. Transforming the mall experience by leveraging technology and multichannel strategies.

The digital transformation of retail is not all bad news for malls. On the contrary, it presents new opportunities for malls to engage consumers throughout their decision journeys. There are three primary ways in which malls are leveraging technology:

First, they are extending their customer relationships to before and after the mall visit. This is about engaging customers through compelling content and creating deeper bonds with them through social media, proprietary sites and apps, and loyalty programs. Social media can be used, for instance, to create buzz about new tenants or solicit ideas from consumers about ideas for new stores. One mall company has utilized segmented Facebook communication to speak to different communities, such as different geographies or interest groups or specific malls. Mall loyalty programs can provide the means for malls to establish a direct relationship with customers that goes beyond each visit to the mall while allowing malls to collect precious information about customers.  

Secondly, malls are using technology to transform mall usability to improve customer satisfaction. There is ample opportunity for malls to decrease customer pain points while simultaneously creating entirely new delight points. Technology, for instance, can be used to address one of the biggest challenges shoppers face at the mall – finding parking. Sensors in parking lots detect how many spots are available on each level and give visual indicators to drivers. Once within the mall, mobile apps can offer quick, easy guides to help shoppers find what they’re looking for at today’s increasingly large and multi-level malls.

3. Exploration of new formats and commercial real estate opportunities.

The most innovative malls today look nothing like their predecessors. Although location remains the key real estate consideration for malls, a differentiated design and structure is increasingly important. Open-air malls go a long ways toward lending an atmosphere of a town center, especially when they incorporate mixed-use real estate. Many of the malls being built in urban areas are open and fully integrated with the landscape. 

Mixed-used developments offer consumers an attractive, integrated community to live, work, and shop. They also generate additional mall traffic while maximizing investment capital returns. Hotels, office buildings, and airports are other commercial real estate opportunities that can add alternative revenue streams.

Lastly, outlet malls are an increasingly popular alternate format in more mature markets such as the U.S., particularly after the downturn of the economy, and they have been a key driver of growth for many players. In emerging economies like Brazil, outlets are also gaining attention and we see mall operators experimenting with this format to attract price-conscious consumers and deal seekers.

Implications for malls

Although these trends express themselves to varying degrees in different markets worldwide, we believe they are relevant globally and should be taken to heart no matter where mall companies operate. Players should understand three strategic considerations when figuring out how to best react.

1) Evolve the offering by defining a clear value proposition for consumers and retailers, anchoring it on deep consumer insights and bullet-proof economics. Among the large universe of options for enhancing the customer experience, it is possible to identify initiatives that will be both ROI-positive and substantially boost customer satisfaction with malls. To do this, all players must first isolate and quantify the consumer touch points most responsible for driving satisfaction. Use these touch points to prioritize investment areas and design a cohesive customer experience program that will yield higher visit and/or spend rates and, ultimately, greater consumer loyalty.

2) Increase productivity and efficiency of the current mall base through a strategic review of the tenant mix, considering consumer needs and retailer economics. This analysis should guide the management of rent pricing and overall commercial planning. On the cost front, the focus should be on strict management of direct and indirect costs, combined with operational efficiency, which is critical for successful customer experience transformations.

3) Think surgically about where and how to grow in a way that won’t jeopardize returns. Focus on city clusters and regions that have distinctive growth opportunities. This includes thinking purposefully about disciplined CAPEX management and which formats are going to create the biggest impact, whether that’s traditional, multi-use, neighborhood, or outlet.

Executing against these considerations will often require that mall players develop new capabilities. Westfield, for example, has established a Digital Office group that reports to the CEO to spearhead digital initiatives across the organization. Other companies have created “customer experience” teams responsible for creating and integrating a unified vision of customer initiatives. Still, others have created retail teams responsible for working on partnerships with retailers or, alternatively, operating retail operations themselves.

The world of retail is changing dramatically, but the mall still can have a central role in urban and suburban societies. To avoid becoming what one chief executive calls a “historical anachronism – a sixty-year aberration that no longer meets the public’s needs,” mall operators must expand their horizons of what a mall can be. They must envision themselves no longer as real estate brokers but instead as customer-facing providers of shoppable entertainment.

Next Galleria Malls are amalgamating new-age entertainment elements and offering it at their one-stop-shop malls. A plethora of innovative options like e-techno zone, premium brands, next-generation multiplex’s, and game zones engulfed Next Galleria Malls. These malls are more viable with well-connected Metro-rail stations as their neighbors.