There are two trends in physical retail that are challenging brands and malls alike: 1) the growing competition of online shopping; and 2) millennials, who constitute the largest age group in the U.S., showing a preference for spending their money on experiences rather than material goods.
In recognition of these quickly-emerging changes, how are these two stalwart retail players — brands and malls — reacting, and which group has the most leverage?
The arguments in favor of the brands:
In an almost perverse way, it is the troubles encountered by major brands that is giving them a strong hand in overcoming the new obstacles mentioned above. One-by-one, some major brands are either shrinking their mall footprints, or closing altogether — enough to where there is a real problem confronting commercial landlords. Brands with physical stores are either not renewing all their expiring leases, or they are breaking some of their active leases and bearing the costs (unless they file for bankruptcy, in which case the landlords are largely the ones left holding the bag). This shrinkage, coupled with the unwillingness of most e-commerce brands to go the route of brick-and-mortar because of the upfront buildout and 5-10 year lease commitments, puts malls at a disadvantage — if not right now, surely in the years ahead.
Brands are aware of this and, from our perspective as pop-up service providers, we see that pop-up shops are being looked upon as a natural brick-and-mortar alternative. Brands can keep their upfront build-out costs small, sometimes non-existent. Brands can mitigate the long-term risks of changing demographics and tastes. Brands no longer have to remain open during their slowest seasons and instead open shop only during the height of their selling seasons. And brands can experiment in ways they couldn’t if they are looking to establish a long-term presence.
As a result, the demand for short-duration pop-ups is rising dramatically, and the malls are now jockeying for position to fulfill the desires and needs of prospective pop-up tenants. The obvious benefits for brands include lower costs and commitments, being able to open up where they want and when they want, and the latitude to try some retail strategies that they otherwise couldn’t in permanent stores.
The arguments in favor of the malls:
He who controls the real estate ultimately controls what goes inside. Brands have a much tougher time turning on a dime as trends and tastes change. Malls can stay ahead of the curve and use the opportunity provided by newly-vacant stores, especially anchor department stores, to convert them into spaces that better match the new trends.
Most malls have made the decision to change their identities from being merely shopping destinations to becoming experiential destinations — with shopping just a part of the overall experience. Gourmet food courts are new, exciting dining options that are striking a chord with the new breed of consumer — they are the stationery equivalent of food trucks, which themselves are growing dynamically as culinary preferences. Gyms, large movie theaters, artisanal marketplaces, and game rooms represent the re-positioning of the malls as experiential venues. Also, in between long-term leases, malls are gaining from playing host to pop-up retailers by essentially “staging” the spaces for prospective long-term tenants while collecting incremental income without having to do much to the space.
By embracing the experiential theme, shopping centers are able to maintain their high rent levels and are recognizing an additional source of revenue — the monetization of their common areas and parking lots through the activation of pop-up events. And this creates a smaller supply of shops that are available for retail, thus leading to an advantageous supply/demand ratio.
Actually, there are no losers from our perspective, and as many as three winners.
The first winners are the shopping malls. As the growth and penetration of online shopping directly compete with their physical stores, the malls are quickly adapting and re-positioning themselves to become more exclusive, more buzz-worthy, and offering experiences such as new dining options and entertainment vehicles to attract shoppers. These are far better strategies than trying to compete mainly on price and speed of shipping, both of which impinge on margins and neither of which is practical.
The second winners are the brands, be they online-only, small merchants, or the major brands. All are going to find a much more welcoming commercial property owner who will have more advantageous leasing terms, a variety of attractive spaces, and services to meet their short-term needs. They will also find that, as with all industries, there are a variety of service providers who will emerge to help them execute their pop-up initiatives — including a national end-to-end service provider as exemplified by PopUp Republic.
The third winners are consumers. It is quite possible that one by-product of having many of the same brands appear at nearly all the nearby malls is the loss of the fun of discovery that used to accompany a trip to the mall. This is true of both retail and dining, where restaurant chains and fast-food fare are predominant among eating options at malls. By having pop-ups appear on a fairly regular basis at their favorite shopping centers, and having more trendy dining and entertainment opportunities, consumers will have all the more reason to patronize their favorite malls and rediscover the visit to the mall as a source of entertainment, discovery, and brand engagement that they cannot get by shopping online.
In fact, we believe that in the end, the consumer is driving all of these changes and are the major beneficiaries of the new trends that are taking place, both via online shopping and by visiting their local malls. Which is how it should be.