Dead Mall Walking

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In the first part of the “Dead Mall Walking”, Dheeraj Dogra, Realty & Retail Analyst talks about the international retail real-estate sector and challenges it is facing.

 The success of any shopping mall is directly proportionate to the success of retailers within that mall who in turn are dependent on the consumer. My retail and real estate journey started in the late 80’s in the suburbs of New York. The small suburban town of White plains where I lived had two shopping malls. By the early 90’s the second mall which was the newer of the two started redoing its tenant mix, they brought in a strong anchor like Macy’s added the missing cinemas to the mix and revamped the food offering. The first mall at the same time showed a rapid decline in terms of quality of tenants and the management did not really bother and retailers slowly started moving out.  Then suddenly a third retail development started coming up just half a mile away. This development was anchored by Neiman Marcus and the first Nordstrom department store in Westchester, promised to turn White Plains into a high-end shopping destination.  Slowly, the second mall changed its positioning; from being an upscale mall to a new tag line “Shopping for the real world” Fortunately there are enough retailers in America to keep that positioning in place. The first mall in the meantime moved away from retail leasing to office leasing. The best part is the last two malls were owned by the same company “Simon Property Group “. They knew exactly what they were doing hence were able to make both their properties profitable by changing the positioning.

Then in the mid 90’s came Amazon an online book store. Slowly stores like Barnes and Noble, Borders started biting the dust. Then Amazon expanded into other categories like CD’s and Dvd’s so the music and movie stores started taking a hit. I call it the early casualties.

Fast forward to 2015, Amazon surpassed Walmart as the most valuable retailer in the United States by market capitalization. The reasons for Amazon’s unprecedented success can be attributed to disruptive products, selection, price, and long-term perspective.  However, what makes the company truly exceptional is the way in which Bezos and team bring these basic concepts together with a singular focus on the customer. If I was to quote from Hindu mythology epic Mahabharata it is like Arjun’s undivided, absolute & complete focus on the eye of the fish, the eye being the customer and the fish being the market ecosystem.

Staggering rate of closing stores

About 2,000 store closures have been announced just within the last six weeks, bringing the total number of planned closures this year to nearly 5,100. That number is expected to keep growing, and reach more than 8,600 before the end of the year, according to Credit Suisse. As I write this piece another legendry US retailer files for chapter 11 bankruptcy protection. It's important for anyone interested enough to pay attention to store closings to remember that store closings in an Omni channel world don't have nearly as much significance as they did when a physical store was the only sales outlet.  For most retailers with Internet and mobile presence, store closings represent not much more than a shift in focus. And that focus is, for the most part, being directed by consumers, not the people sitting in the leather boardroom seats.

The rapid descent of so many retailers has left shopping malls with hundreds of slots to fill, and the pain could be just beginning. More than 10 percent of U.S. retail space, or nearly 1 billion square feet, may need to be closed, converted to other uses or renegotiated for lower rent.

Breaking the Domino Effect

Clearly, closing of malls is a result of “Domino effect” of retail stores closing. The overall American shopping mall scenario is that out of the total of around 1211 malls about 300 are slowly reaching a dead end cause somewhere down the line they lost focus. The rest are surviving because they continue to reinvent themselves keeping the customers changing preferences into perspective.

The key to success lies with the relationship retailer has with his customer.  The American consumer is demanding and the retailers bend over backwards to satisfy their consumers. I can vouch for that first hand. It was my first assignment with the category killer store Bed Bath & Beyond. Warren Eisenberg the cofounder would make it a point to visit the Scarsdale, New York store over the weekends, he would walk the aisles and didn’t mind picking up pieces of paper from the floor so the store looks spick and span to the customers. If he saw customers lining up on a cash register, he would immediately get another register opened so the customers did not have to wait.

Being one of the key managers with the organization I learned so many pioneering concepts like the "racetrack" format where customers must pass by a maze of goods before they reach the product that they came for. The idea is to encourage more impulse buying with lots of tempting merchandise. I also learnt merchandising and how to make optimum use of the available floor space by stacking merchandise from floor up to the ceiling, hence achieving more sales per square feet that the competition.

I still recall talking to Martin Eisenberg (the owner’s son) about how to decentralize authority to the individual store managers. Individual store managers had the authority to stock specific merchandise for specific climate conditions and also based on local preferences. If we were out of stock on a certain size of Wamsuttacomforter, it was picked up immediately from a location which had it in stock and shipped directly to customer at no cost.

From operations to opening of new stores from a 2000 sqft format store to a 20,000 sqft store to an 80,000 sqft. store it was quite a journey. Incidentally, Bed bath and beyond now ranks 233 among Fortune 500 companies. As I moved jobs to Federated department stores (Macy’s and Bloomingdales)and then others the level of customer service in America never cease to amaze me. Another wonderful aspect was consistent training programs sponsored by the employers to increase the skill set of the employees. Employee motivation was given prime consideration and all achievements small or big were recognized and applauded. The high point of my career was being adjudged employee of the year at Macy’s no small feat for a brown skinned short Indian in a trade dominated by Caucasian Americans in the 90’s.

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