The Great Retail Demassification, Part 1

The Death and Diminishment of Malls and Other Big Footprints

We are on the edge of the Great Retail Demassification.  Prior to the “great disruptor” (that would be the Internet), and before the marketplace became ridiculously over-stored and overstuffed, consumers were well served by massive regional malls (currently numbering about 1200), in which retailers located their stores and to which consumers travelled enthusiastically.  To steal a line from the movie, “Field of Dreams,” retail growth strategy during the pre-digital era could truly be based on nothing more than “build it and they will come.” And they did.

Fast forward: consumers have every retail store in the world resting comfortably in their pockets, just a key-tap away, wherever they are and whenever they choose to shop for exactly what they want. Why, then, would anyone spend the time and money to travel to, and shop through the malls; or for that matter, any large, impersonal, traditional retailer?

The period of mall “massification” was enabled by the construction of 54,000 miles of the interstate highway system in the mid-1950s, which also catered to the shopping desires of highly mobile and “motorized” families, eager to hop in the car and spend entire days shopping in these brand new social gathering spots.  Initially, and for the following few decades, malls were a shopping novelty and paradigms of modern architectural retail temples.  The 50s also marked the onset of the massification of department stores, and national chains anchoring the malls, and the growth of retail specialty chains required to further populate these shopping meccas.  Then there was the explosion of strip malls — homes to the massive “big- box category killers” such as Toys”R”Us, Home Depot HD -0.93%, Bed, Bath & Beyond — and discounters Walmart, Target TGT +0.35%, ad infinitum.

The Open Road (Photo credit: CGP Grey)

And they kept building and building and building.  And consumers kept coming and coming and coming … until they didn’t.

2009-09-07T17-58-02 — DSC_0075 (Photo credit: CGP Grey)

But this virtuous free-market cycle didn’t come to an end until we had built enough total retail space to divvy up 46 square feet of it for every man, woman and child in the U.S.; along with more “stuff” jammed into that space than anyone would ever need in a lifetime (for context, the UK, which is in second place, has about 9 square feet of retail space per capita). So into this environment of total retail saturation — in which retailers exist in a constant state of cutthroat competition and price wars to win the consumer’s wallet — the great Internet disruptor enters. And its full blown effect was like pouring gasoline onto an already-out-of-control fire.  Try to compute how many square feet of retail space some five billion e-commerce retail sites have added to the congestion.  Then add to this the unprecedented Great (no recovery) Recession, and we are now on the edge of witnessing a massive elimination, downsizing, or repurposing of brick-and-mortar stores, and the malls and shopping centers that house them. Finally, finally, and finally, maybe this industry will get rid of a lot of excess and bring some sane equilibrium back to supply and demand.

Indeed, this is the era of the Great Retail Demassification.

Plus, It’s What the Kids Want

This demassification and/or downsizing is not the sole result of e-commerce stealing share from brick- and-mortar retailing. It’s also being driven proactively by savvy retailers who understand the shifting desires and expectations of consumers, and particularly the Millennial generation, who will drive roughly 40 percent of all retail sales by 2020.  Smart retailers are listening, hearing, and responding to the zeitgeist of this new culture.

Less is more for Millennials, and quality of lifestyle is desired over big quantities of everything.  Smaller, more intimate and interesting environments trump massive, overwhelming spaces and choice. High-tech and even higher-touch experiences are requisites. Ostentation is eschewed for the understated. “Special-just-for-me,” highly personalized brands beat out publicly displayed badges of luxury.  And social gathering places don’t need physical spaces. These are but a few of this younger culture’s many new mantras – and distinguishing features. Finally, with 24/7 shopping access to everything in the world in the palms of their hands, the only way a physical store can tear them away from such convenience is to provide an incredibly compelling social and experiential community that they will want to seek out.

Samsung Galaxy Tab (Photo credit: 3 Sverige)

So the disruption of e-commerce, adding virtual square footage to an already over-saturated marketplace still struggling from the recession, along with the shifting shopping desires of the new Millennial consumers, is driving the following strategic and structural changes in the retail landscape:

1. Recasting Regional Malls, Shopping Centers and Strip Malls

The health of these shopping venues, both large and small, depends on the health of the retailers who populate them, who in turn, depend on the economic health of the consumers who shop their stores.  On a purely economic basis, the financial strength and growth potential of these venues and the retailers within them parallels the polarization and widening income gap of consumers.

Thus there exists a bifurcated economic retail structure: upscale/more “wants” driven; and downscale/more “needs” driven.  In both cases, the slow-to-no growth economy has a negative impact.

In the second part of this article, we’ll look at some other changes we are likely to see in retail as the ground continues to shift under our feet.