In the second part of our ‘Everything Digital’ series, Gary Burrows, Managing Director – Malls and Meeting at FitForCommerce discusses the great mall reset and how the sector is making the most of a bad situation.

With so many malls struggling, in breach of their loan to value covenants, previously healthy assets are being sold off at a fraction of their previous value. While the industry was already changing before the pandemic, the thinning of the herd is increasing its pace and the oversupply of retail and malls is readjusting itself quicker than anyone imagined. In the US alone, 25 per cent of all malls will permanently close their doors within the next five years, if not sooner.

The great reset of malls, towns and city centres is upon us, and nobody was truly ready for it. Focusing on minor adjustments and waiting for a return to normal is simply not enough to survive. In times like these, we must embrace systemic change in order to evolve enough to stay relevant. From the lease structure through to the operating model, all aspects of a mall or meeting place must be supported by a strong digital foundation. Although it may be difficult to justify the investment in a digital ecosystem when times are tough, the investment will prove beneficial for the long-term sustainability of the asset.

The great reset of malls focuses on a merged digital and physical space with greater collaboration between landlords and retailers. Data sharing and landlord access to transactional data, within a secure closed operating system, is critical in this new mall reality. However, tenants are still reluctant to share transactional data with landlords as they are concerned about the security and confidentiality of the data or believe that it will be used for an upward rent negotiation.

The historic distrust between tenants and landlords that has been glossed over with superficial partnership strategies must be put aside. Shared data is essential to supporting new turnover or percentage rents, especially within a geographically ring-fenced area, where online sales are also included in the rental calculation. If the online sale is fulfilled from the store, then it is particularly hard to argue that the landlord should not receive a proportionate amount, as defined by the turnover rent.

If landlords leverage a closed, secure and confidential operating system, with advanced algorithms, tenants will be less concerned about allowing transactional data to be shared with the landlord. Designed to benefit the tenant as well, such a system can provide intelligent and actionable data to the tenant including trend analysis and performance metrics. It can also capture essential customer data needed to deliver personalised customer experiences, while successfully navigating GDPR and cybersecurity laws.

In this new mall reality, the digital customer experience must be as frictionless, and service oriented as the physical experience. We must leverage advanced algorithms, similar to those used by Facebook, that deliver only the content that the consumer is interested in. When used in a mall or retail environment, wrapped within a digital ecosystem, we can deliver an enhanced personalised customer experience that allows for greater upsell opportunities and thereby an increase in turnover potential.

Malls and meeting places can also learn from Amazon’s end-to-end business solutions that include website and e-commerce setup, logistics and even manufacturing and finance options. Imagine if mall owners offered a similar solution to local entrepreneurs and new business startups. Consumers have already expressed a strong interest in locally unique and authentic brands. If malls were to offer a business solution to local businesses, we would see a lot more regional variety and exciting new businesses in malls where they have previously been priced out of the market. This is consumerism creating and defining its own environment, based on the behaviours, needs and desires of the local or regional catchment.

As more digitally native brands enter the physical space, filling the void left by those retailers that did not embrace online commerce early enough, leases will change with turnover only, or percentage rents, which even wrap in service charge costs. If mall owners want to include these digitally native brands that are lean, agile, creative, innovative, adaptable and scalable, they will have to radically rethink their rigid lease structures.

As a merged digital and physical space, the future mall or meeting place will rely on a much stronger logistics infrastructure and layout. The physical space will include dark stores, group kitchens for restaurants and new store formats. Rather than simply a shopping destination, brand stores will focus on delivering unique brand experiences and increasingly become fulfillment hubs for home delivery. As a result, malls and meeting places will welcome a more diverse tenant mix, including medical clinics, educational institutions, co-working spaces, leisure and entertainment, e-games, and social, cultural and community events.

The technology solutions required to radically evolve the industry already exist but have yet to be adopted by the mainstream. These leading-edge systems and technologies, that go way beyond digital ecosystems, are hosted by the landlord and interfaces with the tenants/operators and customers, allowing for a new level of communication and sales potential based on consumer demands and expectations. The future is here now – are you ready to reset?