The global pandemic has exacerbated many pre-existing problems for mall operators and tenants, and they will be forced to adopt new business practices if they are to survive in a radically different retail environment, says a new study.
Based on interviews with senior mall executives and 14 national retailers, and complemented by two waves of consumer research, Deloitte’s The Future of the Mall report says the pandemic has shone a bright light on the operations of malls and retailers, uncovering deep-rooted problems.
Canada’s malls were already seeing a marked decrease in customers prior to the pandemic, with foot traffic in the country’s top 10 malls in February down 42% from a year ago.
More worrisome for mall operators is that the pandemic has caused consumers to re-evaluate their relationship with brick-and-mortar stores. The survey found that Canadians expect to spend less time in malls once the pandemic is over, and operators and tenants will require new ways of operating to motivate customers to return.
“The mall of the future will be a destination that feeds the functional requirements of our lives as well as our need to be social,” says the report. “It will be a thriving community where people will live, work, play, and eat. It will not be your parents’ mall—so much so that we might no longer call it a ‘mall’ anymore at all.”
Among the study’s findings:
A new role for stores
It’s widely believed that the pandemic will lead to an increase in online shopping, with the number of people saying they shopped in malls once a week falling from 24% pre-COVID to only 12% who say they expect to do so when restrictions are lifted.
Much of their shopping will migrate online, meaning remaining brick-and-mortar locations will need to fulfill a different role. Deloitte predicts the role of in-store associates will be elevated to that of a “trusted brand advisor” or “brand ambassador.” If not, the physical store will become “almost irrelevant.”
Brick-and-mortar locations will also need to develop an array of services to support in-store associates, including looking up product information instantly; providing recommendations “on the fly” based on customer reactions; and finalizing orders and making delivery arrangements.
One of the examples of what retail might look like is Nordstrom Local: a small store that features no inventory but offers services such as online order pick-up and return, style advice and tailoring/alterations.
“Bold and innovative approaches like these will undoubtedly contribute to the company’s long-term success,” says Deloitte, noting that Nordstrom plans to close 16 of its underperforming department stores.
Food: The new fashion
Fashion retailers were once among the primary mall tenants, with some mall operators devoting as much as 60% of their space to fashion merchandisers.
But fashion retailers have been hard-hit by several factors, including the rise of direct-to-consumer options and consumers becoming increasingly aware of the impact of “fast-fashion” on the environment. The pandemic has also led to a more casual approach to dressing,
According to Deloitte, the percentage of people who shop mostly in-store for apparel has fallen from 72% pre-pandemic to an anticipated 55% once businesses fully re-open. That means malls will need to find new tenants to fulfill the role of the “main attraction,” with Deloitte predicting that role will be filled by food.
Deloitte says that floor space allocation for food and beverage in malls has risen from 5% in the 1990s to as much as 15-20% today. “All of the landlords we interviewed believe that food and beverage is ready to explode into malls,” the report concludes.
Dining out benefits from broad consumer appeal and the fact the experience can’t be replicated online, says Deloitte. More than one-third of respondents (35%) identified a “great assortment of food and restaurants for dining or take-out, including a food hall” as one of the amenities that would attract them a mall.
That role won’t be filled by the “tired and broken” food-court model, but “next-generation mall food” consisting of food halls featuring rising chefs or multiple restaurants. A strong food and beverage option will lead to increased dwell time that will benefit all mall tenants, the study says.
No longer just shopping
Deloitte says that so-called “single-purpose malls” that house a collection of retailers will struggle to remain relevant in a new era. Instead, it says, they need to become “the new meeting place,” a multi-purpose destination offering extensive leisure activities with functions like office, residential and cultural amenities.
Mall owners might also need to rethink for rental models for different types of retail experiences. “If the mall or store can’t provide a great experience, there’s no reason to go there because you can just buy what you want online,” said one mall owner.
