When the Mall’s Just a Keystroke Away, Should Retailers Worry?
Just a short hike from the malls that made Valley girls famous, Richard Rosenblatt plots the undermining of their world. President of iMALL, the nation’s largest independent Internet shopping mall, Rosenblatt imagines a time when the shoppers’ world of concrete and steel slowly buckles under the pressure of millions of keystrokes on computer keyboards.
“This is like a retail Yellow Pages on steroids,” says Rosenblatt, referring to iMALL. “You want a computer store, we don’t give you access to one, but to 10.”
Although still in its infancy, Internet commerce is beginning to reshape the world of retailing much as the railroads and high finance conspired to bring department stores to the nation’s small-business-dominated shopping districts. By early next century, it will start to pose a formidable challenge to city planners, who may suddenly find themselves with huge blocks of retail space made redundant by the growth of on-line businesses. To fend off this threat, developers and officials will need to adjust their attitudes toward such forms of retailing as farmers’ markets, craft-based fairs and entertainment-oriented activities, which cannot be easily duplicated on the Internet.
As Internet use has grown--from an estimated 9 million in 1995 to about 50 million--its use as a commercial platform has skyrocketed correspondingly, from $600 million in 1996 to more than $2 billion last year. Most studies project E-tailing revenues to hit as high as $35 billion in 2000.
Not surprisingly, entrepreneurs like Rosenblatt see in all this the potential to become the electronic successors of such retailing giants as New York department-store pioneer Alexander Stewart, Dallas’ Stanley Marcus and Arkansas’ Sam Walton. Building from his initial business of helping stores get on-line, Rosenblatt has signed up more than 1,600 merchants for his iMALL. The site had more than 2 million visitors in January, a 58% jump from the previous month. On-line month-to-month sales rose by 25%; year to date, they are up 200%.
Like most Internet commerce firms, iMALL lost money last year; more ballyhooed companies such as Amazon.Com and New York-based N2K lost even more money, though both say they will begin to show profits around the year 2000. Yet, capital continues to pour into the industry, for reasons that relate to demographics, consumer attitudes and technology.
More and more Americans are dissatisfied with their current shopping environment. According to surveys by Deloitte & Touche, about half of them consider shopping “an unpleasant chore.” More alarming for conventional retailers, that number climbed to 55% among respondents under age 35. Another recent study, done by the International Council of Shopping Centers, found that 60% of consumers complained that their activities conflicted with store hours.
Successful merchants always have relied on their ability to satisfy individual customer needs. But in their rush toward discounting and rationalization, conventional retailers unwittingly opened the door to net-based competitors that embed sophisticated information, even artificial intelligence into their E-tailing sites. “If I am going to shop and get poor service and a bad experience,” says Deloitte’s Tony Cherback, “I increasingly can get better information and service on the computer.”
Today, adds Cherback, shoppers are eager to find ways to buy goods with less hassle, faster turnaround and lower prices. The result is a boomlet in both home-shopping and catalog sales. Non-store categories--phone, home TV shopping, catalog as well as on-line--now account for about 15% to 20% of all general retailing. Within 15 years, led by the expansion of on-line retailing, that percentage could grow to 55%. Even more unsettling news for the conventional retailer is that the home-based shopper tends to be wealthier, better educated and includes many older women, formerly the mainstay of the mall-based department store.
On-line retailing enjoys many intrinsic advantages over conventional store shopping. For one, it is not confined to workers’ hours or labor regulations; it’s like a 24-hour digital sweatshop. It offers instantaneous transactions and the constant ability to change offerings or prices with greater ease than phone-, TV- or catalog-based media. Finally, and perhaps most important, it has the potential to provide consumers with far more in terms of selection since it costs so little to “print” extra pages.
To be sure, Internet commerce still represents barely a drop in the bucket in the nation’s aggregate retail sales; Walmart’s annual sales alone are far higher. Furthermore, selling some goods, like clothes and shoes, may not be easily adaptable to the net, though some web sports sites report brisk business in T-shirts with professional team logos.
As the biggest and most successful retail chains, including Home Depot, Office-Max, Barnes & Noble, Toys R Us and Walmart, get into the web act, the consequences for conventional retailing will be felt. Possible victims include some of the roughly 19 million people who, in 1994, worked in retail--down by more than 400,000 this decade. At the same time, people working in interactive marketing, now estimated at a mere 15,000, can be expected to grow exponentially.
But the most conspicuous losers in the emerging retail universe could be shopping-center investors, retail chains and their shareholders. San Francisco real estate analyst Mark Borsuk believes Internet commerce could produce “third wave tsoris” (the Yiddish word for grief) in the existing retail environment. “We are talking, within a decade, of a structural transition in how retailers do business,” says Borsuk. “They are going to have to greatly change their assessment of their space needs. The distribution model is going to change, since the Internet makes it possible for a producer to sell to an individual at their home.”
More ominously, the Internet-commerce takeoff is occurring when most real estate experts believe the country is already “overstored” and, amazingly, getting more so, with retail space up more than 20% since 1990. According to a study by the Chicago-based Real Estate Research Corp., between 10% and 15% of all regional malls will have to be abandoned or redeveloped in the near future. Indeed, by one estimate, the growth of at-home shopping could free up roughly 110 million square feet of retail space, or the loss of more than 100 regional malls. Borsuk and other analysts say property owners should find ways to transform their underused shopping sites into education centers, flea markets, micro-breweries, government office space or even air-controlled necropolises.
Yet, analysts believe that conventional retailing will survive if it focuses on aspects of the shopping experience--social, entertainment, cultural--unavailable on the web. “There’s got to be a return to retail showmanship,” says Karen Demarest Cosaro, co-president of Simon Brand Ventures, an Indianapolis-based mall designers.
But attempts to create Disneyland-like environments are turning some of the nation’s previously special shopping districts--mid-town Manhattan, Chicago’s Lakeshore, Union Square in San Francisco and Beverly Hills’ Rodeo Drive--into near-clones of each other. To thrive in the Net’s century, retailers may have to return to offering a combination of old-fashioned personal service and unusual goods in shopper-friendly environments. Districts like Soho in Manhattan, Camden Lock in London and Melrose in Los Angeles do this, and they are especially popular among affluent and younger shoppers.
Such districts can survive and perhaps make money in a retailing world driven by the Internet. “There’s still something about taking your baby outside and getting some fresh air,” iMALL’s Rosenblatt admits. “There’s still entertainment value. You can’t take your wife out to dinner on the Internet.”
Research assistance for this article was provided by Charles Kaljian.
