The first indoor mall in the United States opened its doors in Duluth, Minn. just about 100 years ago — July 20, 1916, to be precise.
Known as the Lake View Store, it contained everything from a department store and a butcher shop to a dentist, a hat shop and billiard room on three floors, including a basement.
But it wasn’t until more than three decades later that a unique set of legal circumstances coincided to create what we think of today when someone says they’re going to “The Mall.”
The Great American Mall
In the 1950s and '60s several new laws incentivized mall construction.
In 1954, accelerated depreciation laws drove development outside of urban centers and in 1960, another set of laws led to the creation of REITs, which were able to avoid corporate income tax. With strong financial incentives and the rise of suburbia and its automobile culture, Saturday trips to the mall became an American tradition.
Made up of anchor tenants, food courts, parking facilities and standalone retailers, malls are fairly formulaic no matter how creative the architect.
They’ve always been designed to influence customer behavior. Inward-facing layouts immersed people in the shopping journey, blocking out the elements. One destination spilled over to the next; easy parking, central locations and a broad offering of food and entertainment meant customers visited more often, stayed longer and spent more.
This model continued very successfully up until the dawn of the 21st century. In the mid-1990s malls were being built in the US at a rate of 140 a year.
Then in 2007, boom! Mall construction came to a screeching halt. For the first time in 50 years, not one single new mall was built in the United States.
Malls vs. E-Commerce
So what happened? In a word, e-commerce: In 2007, it made up 4 percent of total US retail sales, enough to matter to brick-and-mortar retailers.
Customers could suddenly comparison shop with ease and make purchases at home in the comfort of their pajamas.
Mall developers and retailers — who for decades provided the only real shopping game around for customers who wanted a personal way to explore or purchase products — were no longer in control of the shopping experience.
Customers were no longer limited by choice or even operating hours. The internet and e-commerce sites put them in the driver’s seats.
Today, no one thinks twice about ordering multiple products to their homes, trying them out and returning what they didn’t like — often with free return shipping. They can price shop across multiple sites, distributing their disposable income with little regard for brand loyalty.
Spoiled by these price and time advantages, physically navigating the mall to find specific items feels increasingly unproductive.
Evolving Malls for a New Era
Speed and instant gratification are the new standards that mall owners and retailers must embrace in order to grow.
The industry is already seeing a sell-off of low-quality malls and even some diversification of offerings within the physical mall layouts to attract new visitors (think live events, celebrity chef restaurants, pop ups and more).
Instead of pouring funding into blanket redevelopments, REITs are more selective in their investment strategies.
The top properties are more glamorous than ever, while others are specializing for specific use cases (offices and concourses) or demographics (shops just for seniors).
Many are smartly seeking digital solutions to complement their physical assets: smart systems that track movements, programs that reward loyal customers with discounts or better service, or simply just helping people search and find stuff in the (intentionally confusing) mall maze.
In doing so, they preserve billions in real estate value from investments made decades ago when their customers were very different than they are today.
Converging the Digital and Physical Worlds
Coming full circle, malls are bringing the online experience offline: shop however you want, whether browsing or hunting, and get a personalized experience.
Data on foot traffic (for example, heatmaps), zone analytics and shopper intent sourced through their digital infrastructure gives them the flexibility to analyze and tweak the customer experience daily.
In the end, it’s the physical location of the mall and its promises of immediate gratification (faster even than a drone delivery) that will lure shoppers.
At an enduring 91 percent of all US retail sales in 2015, brick and mortar is here to stay. But its not the only game in town anymore, and retailers who want to succeed will need to bring digital technologies to the physical world to stay relevant.
Title image from the public domain/Wikimedia