Are Malls Becoming the Next Dinosaur

Retailers are scrambling to figure out how to survive as e-commerce and the global pandemic have upended their traditional business model. Can they reinvent themselves or will they go the way of so many past industries no longer with us?

Retailers across the United States are facing mass extinction as a fallout from the Covid-19 pandemic that’s raging across the country. Between 20,000 – 25,000 stores are projected to have closed in 2020, including the who’s who of American retailers (Macy’s, Brooks Brothers, etc.) shuttering their doors as a result of, or to stave off, bankruptcy. Over half of these closures will hit mall-based retailers, putting even greater pressure on many malls across the US. While the pandemic did not cause the decline of many US retailers, it clearly has accelerated the largest restructuring of the US retail landscape since the end of World War II.

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(Source: CoreSight Research, Wall Street Journal)

Retailers, and especially mall-based landlords, have seen the warning signs that the consumer shopping behaviour was changing for the past 5-10 years. But a myriad of factors have hampered their ability to reinvent themselves.

  • Over-supply of retail: The US has the highest square footage of retail space per capita worldwide, 40% higher than Canada and two times the space of Australia. The post-WWII flight to the suburbs across the United States fuelled a massive expansion of retail stores, especially at malls where consumers could easily shop multiple stores in one easy location. The mall has been an icon of American culture, where teens would go to hang out with friends, young families would go for the indoor playground and retirees would go to socialize and exercise. The decline of the mall is tearing apart the fabric of many communities across the US.
  • Decline in apparel spending: US consumers have been spending less on clothing, as a percentage of their disposable income. For the past 40 years society has become less formal, and younger generations have placed greater emphasis on experiences rather than material goods. The constant pressure to eke out positive comps has led many brands to focus on discounting to drive growth, rather than on differentiation. This shift in mindset opened the door for fast fashion brands like Zara or H&M to enter the market and leverage their supply chain expertise to shift the value equation.
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Apparel Spending, percent of disposable income 1928-2010 (Source: US Dept. of Labor, NPD)

  • E-commerce Acceleration: Much has been written about how Amazon has reshaped many different retail industries. E-commerce now represents 37% of all apparel and accessory revenue and, unsurprisingly, was the only bright spot for many retailers who pivoted their business model last spring as stores shut down.

As dire as the US retail marketplace may seem, there are a many brands and retail landlords who are experimenting with different business models to try to meet the changing needs of the US consumer. While it’s unknown if and when consumer shopping behaviour will return to normal, these business models are at least undertaking different strategies rather than embodying the definition of insanity; “doing the same thing over and over again and expecting a different result.”

Landlords Buying Bankrupt Brands

Over 1,000 malls exist throughout the US, spread across major metropolitan areas to smaller rural towns. By some estimates, potentially a third of America’s malls will close their doors, fundamentally impacting numerous communities around the country.

To combat the decline, two leading mall owners, Simon Property Group and Brookfield Properties, have acquired a number of apparel retailers in partnership with Authentic Brands Group. The strategy behind buying fabled yet beleaguered brands like JC Penny, Brooks Brothers and Forever 21 is twofold. First, it enables them to cherry pick the best doors of these brands at a significantly reduced price, most of which will be located in one of their malls. For a mall to remain relevant, it’s needs enough appealing stores to attract consumers and drive foot traffic. If more of their tenants have to close, the mall begins to look and feel like a ghost town, making them even less welcoming for prospective shoppers. This strategy also helps landlords protect their downside risk by keeping occupancy levels (artificially?) high to not trigger an exit clause for existing tenants.

While clearly something was already broken for these brands to fall into Chapter 11, by reducing their debt, lowering fixed costs like rent and skimming off the best locations through the reorganisation process, these brands might just have enough runway to survive. Not every acquisition will be successful. But for a landlord, having a portfolio of brands that they are invested in to succeed will better align their incentives and possibly keep some of their malls from meeting their demise.

Brick & Mortar as an E-Commerce Hub

The onset of Covid-19 forced many retailers to accelerate plans towards a greater omni-channel shopping environment: curbside pick-up, contactless transactions, etc. This has helped to maintain some of their business during the pandemic. Leading retailers have further evolved their brick & mortar doors to serve their own e-commerce business.

Today, over 60% of households in the United States are Amazon Prime members, which gives them access to free shipping and in many locations, 2-day or faster shipping. What would have been considered outrageous just a few years ago has now become the norm for most US consumers. To fight back the Amazon onslaught, larger brick & mortar retailers, like Target, are making significant investments to allow customers to not only pick up same day orders in store but also to use their physical footprint as mini distribution centres. “Having all these nodes and physical retail stores has been their magic pill on how to compete with others like Amazon and pure e-commerce players,” says, Greg Conner, VP of Global Sales at Bastian Solutions. Using stores as their e-commerce hub, Target has been able to fulfil 80% of its total e-commerce volume while also saving money, since stores are 40% cheaper than shipping for a large warehouse. “We already own the building, the lights are on and we have a replenishment process … it’s allowing us to deliver faster for our guests than we could have before,” according to Target spokesperson Jill Lewis.

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(Source: Multichannel Merchant)

Repurpose Dead Malls to Address Homelessness

Homelessness has become a major issue facing most large cities across the United States. Over 500,000 people were homeless in 2018, a number that will have only climbed as the Covid-19 pandemic accelerated joblessness and food insecurity. [1] A lack of affordable housing, particularly in major metropolitan areas on the East and West Coast, has forced many people to ‘camp’ on sidewalks or in tent cities.

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(Source: Seattle Times)

A mall developer and non-profit in Washington, DC are partnering to repurpose the Alexandria Mall. “It’s a new way of thinking that is bringing together three economic phenomena: the collapse of the brick-and-mortar retail industry, the disappearance of affordable housing in America’s boom towns, and the struggle to reduce homelessness.” It’s too early to tell how successful this venture will be, but it’s a unique example of trying to use an underutilised asset for greater good in the community.

Each of these three new business models will likely not be the saviour for the post-covid retail marketplace in the United States. Yet, they offer a glimmer of hope that new and innovative ideas can help to repurpose many brick & mortar locations and ultimately spur the next generation of economic growth for the country.


How US Brick & Mortar Stores Can Survive in the Digital Age

Going Out of Business Sales

There have been numerous articles the past few years about the retail apocalypse occurring across the United States. Already this year, almost 8,000 stores have announced that they will be closing their doors with projections to reach 12,000 doors by year end.[1] This will be the single largest net loss of retail stores over the past eight years.

Source: CoreSight

Despite many prognosticators promoting the end of the brick and mortar store, there are multiple examples of brands who are leveraging their physical and digital footprints to establish deeper, more meaningful relationships with their customers.  However, before we dive into the future, it’s important to examine the key lessons from the past.

Oversupply + Little Differentiation = “SEA-OF-SAMENESS”

Moving back to the United States after living in Europe a few years, I was struck by how similar each shopping center looked, no matter what part of the country I was.  The sheer size of the US, access to cheap capital and heavy reliance on the automobile fueled a massive expansion of retail stores. Retailers could largely drive annual revenue increases by just opening up more and more doors. As of 2015, there was 5X more total retail space per capita that in France or the UK but only 50% higher sales/capita.

Retail Sqft Per Capita, Retail Sales per Capita.

The rise of E-commerce, which has reached 35% of all US apparel sales last year [2], has only accelerated the inevitable demise of many venerable retailers, such as Kmart, Toys ‘R Us and Payless Shoe Source as more doors chased the same customer with nearly the same product offering and in-store experience. This resulted in a “SEA – OF – SAMENESS.  

Future of Brick and Mortar in the Digital Age

Rather than viewing their stores as a dinosaur, successful retailers are transforming their physical locations to create a deeper, more tactile experience than online-only experiences. Since omni channel customers purchase twice as often and spend more than single-channel customers[3], retailers will need to adopt three basics principles to ultimately survive in the US marketplace.   

Create Digitally Connected Journeys:  US retailers are investing millions of dollars annually to enable greater omnichannel integration, yet there remains a long way to go. Just over 25% of US retailers offer BOPIS (Buy online, pick up in store) and just over one-third provide ship from store capability[4]

Nike’s new Innovation House in Shanghai and New York has heavily embedded digital in-store technology to provide consumers greater choice and ease in their shopping journey. Using the Nike App consumers are able to “Shop the Look”, which places a mannequin’s entire outfit in a virtual shopping cart.  “Scan to Try” allows the consumer reserve items to a fitting room of the consumer’s choice.  “Instant Checkout” speeds up the payment process by allowing consumers to skip the line and buy their items through the Nike app.

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Evolve from Selling just Products to Selling Experience

It’s not just millennials who are placing greater emphasis on experiences. Almost 75% of all Americans surveyed prioritize experience over products or things.[5] While this might seem threatening to many traditional retailers, some brands are expanding their offering to meet consumers where they are and ultimately, create a deeper relationship.

Recreational Equipment Inc (REI), the largest outdoor retailer and cooperative in the US is aggressively expanding its rental offering and used gear options. Knowing that can be intimidated about going into the outdoors, REI “sees the expanded rental and used gear program as keeping us moving towards a sustainable and accessible outdoor future by offering new model of access to great outdoor gear and apparel,“ stated Ben Steele, REI Chief Customer Officer.  Each rental occasion also offers REI 2 additional consumer touchpoints, one upon pick up and other when returning the gear. Each touchpoint gives REI the opportunity to not only sell additional products but also share its knowledge and passion for the outdoors.  

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Source: REI

Evolve the Sales Associate to a Service Partner

In an age where consumers have so many choices to spend their hard-earned money, the days of the inattentive or pushy salesperson are coming to an end.  Despite consumers reliance on smartphones through their shopping journey, their remains a need and a potential source of differentiation for stores to provide the compelling service.

In Nike’s Innovation House, it’s new Expert Studio is Nike’s first dedicated floor to provide member-only experiences such as one-to-one appointments, access to exclusive products and the chance to create personalized products in its Nike By You Studio. Most of the luxury brands already offer an elevated level of service, due their high price points. Nike is providing a similar high-touch consumer experience and through its Nike App, segmented product strategy and in-store experience keep its move valuable customers in the Nike DTC ecosystem.

Not all brands in the crowded and competitive US marketplace are going to be able to make this transition and ultimately won’t survive. While some past market leaders, like Sears and Toys R’ Us, have unsuccessfully been able to pivot their business model, this does not mean that brick and mortar retail is dead in the US. Strengthening their omnichannel integration and creating experiences that are meaningful to their most valuable customers are critical steps for all retailers to consider as they try to thrive in a very competitive and tumultuous marketplace in the United States.

[1] Coresight Research

[2] Digtal Commerce 360, “2019 Online Apparel Report”

[3] McKinsey & Co,

[4] L2 Onmichannel report

[5] Center for Generational Kinetics

Brands, Industry consolidation, News, Outdoor industry, Strategic Reinvention, Strategy

Outdoor industry consolidation

After attending the Outdoor Retailer tradeshow in August ’12, I posted one of my first blogs that suggested that there would be consolidation in the near future in the stand up paddleboard (SUP) category. There were many telltale signs that consolidation was on the horizon; limited barriers to entry, little product differentiation about brands, product in multiple distribution channels, ranging from specialty retailers to value channel players like Costco.

While I don’t usually like to toot my own horn, I’m proud to note that I got this trend right. Just last week, one of the leading brands, Surftech, was acquired by an investment company out of Thailand. Another competitor, Boardworks, was also recently acquired.  More noticeable has been the reduction in the number of SUP brands at trade shows and in the marketplace.

So what can we learn from this dynamic? First, the importance of differentiation, both product and brand, is critical for any company to survive in  these consumer segments. Second, it’s important for any company to anticipate industry shifts and react before they happen. Lastly, when the ground shifts beneath a company, understanding what your brand stands for and how it can evolve will help determine whether a brand can survive such a shakeout.

While I know I didn’t predict Apple’s turnaround or predicted the decline of the Walkman but there are always lessons to be learned and patterns to recognize for the future.

Brands, Europe, Footwear and Apparel, Strategy

Land of the Lemings, Euro Version

A while back, I posted an article deriding the lack of creativity and “sameness” in the outdoor industry. After having spent the past week  in the US and Europe visiting Outdoor Retailer and ISPO in Munich, I’m saddened to report that the Land of Lemings has not changed and even worse, there are more brands and excess product in Europe.

Most striking that how few global or pan European brands there are in the outdoor industry in Europe. Outside of The North Face, Patagonia and the emergence of Arc’Teryx, most popular brands remain small, regional players. There continues the belief that only product matters but we all know, from personal experience, it’s often hard to tell the difference between two items. That’s why you see many more BMW’s vs. Hyundai’s on the road throughout Europe.  What these companies don’t truly comprehend is that success is not about features and benefits but rather creating an emotional connection to the consumer.

This dynamic is slowing starting to change as competition heats up from US brands and capital remains tight for these smaller brands to expand.  Like many other consumer industries, consolidation is starting to occur in the outdoor industry as well. Once the floodgates open, there will likely be the decline of many of these brands. Hopefully, those that survive will learn that just being “me too” isn’t a long term recipe for success


Everest Consulting Two Year Anniversary

On February 1st, 2012, I launched Everest Consulting with the simple idea of providing actionable and thought provoking growth strategy consulting advice to consumer brands. The growth and momentum of the business has been remarkable.  Clearly, there are many companies, successful and unsuccessful, that need in help in clarifying their brand position, prioritizing key initiatives and aligning resources behinds those ideas that will truly move the needle. In today’s ever cluttered world of products and brands, creating a point of differentiation in the market is even more important.

I’d like to thank all of my clients and business partners for their support and willingness to work in evolving their business strategy.  The best is yet to come!

Brands, Footwear and Apparel, News

Nike’s latest craze…Socks!

You might be wondering why I would ever consider writing about such a staid product like socks. Walk around any school yard these days and you’ll quickly realize that the days of the basic white tube socks are gone. As a father of two 9 year olds, we are seeing first-hand the craze of the Nike Elite basketball sock. (Disclaimer: as the former GM of Nike’s Equipment division, socks was one of my largest product categories. Yet, I can take little credit for this recent success).  Selling for a whopping $16/pair, my kids must have an equivalent of 1-2 pairs of shoes worth of socks in their drawer, in all colors imaginable.  While Nike created this newest craze, many other brands in the sporting goods industry are capitalizing on the trend and achieving 25% – 40% sales growth. So, what’s behind this phenomenen?

Continue reading

Brands, Consumer Electronics, Media, Strategy

The Rise and Fall of Consumer Brands

This week’s Wall Street Journal has run a great series on the decline of Japan’s consumer electronic brands like Sony, Toshiba, Sharp, etc.  While the electronics industry is extremely competitive with frequently changing technology, no one would have predicted 10 -15 years ago that Sony would be surpassed by it’s Korean competitor, Samsung. For those who grew up in the 80’s, the Sony Walkman was our generations version of the iPod. No longer did we have to carry around a transistor radio or “boom box”. We could cruise around with our Walkman in our back pocket and listen to cassette tapes or the radio.

What Sony and many other consumer brands get wrong is to assume that their consumers will be happy with improved versions of their existing products. Naturally, continual improvement is an important part of any business but is not the key to long term success.  It’s been said that Steve Jobs didn’t believe in consumer research because most consumers could only tell them what their needs are today. Part of this is true yet I would argue that the best brands are able to interpret what consumers are saying to not only understand what issues they face and but also understand how those needs are going to evolve. Continue reading

Footwear and Apparel, News

Outdoor Industry – Land of Lemmings?

Touring the Outdoor Retailer trade show last week, I was struck again by how much of the industry is littered with small, enthusiast run companies that are just copying others. Stand up paddle boards (SUP) were the most egregious example of a bunch of lemmings (Webster’s definition: a member of any large group following an unthinking course towards self destruction) who were all thinking that the explosion of this sport was going to continue unabated. Looking back at the history of many other once hot categories like snowboards, inline skates and Razor scooters, I can already predict what the SUP paddle board industry will look like in a few years.  The bigger question is why does this seem to happen so frequently. I believe there are a few key drivers of this behavior. Continue reading