Struggles to Remain for Economy, Malls

NRF convention attendees received a dose of reality: Business probably won’t get much better this year, and the future of traditional indoor malls is bleak.

They came to the National Retail Federation convention to be uplifted and received a dose of reality: The economic rebound is “fragile,” business probably won’t get much better this year, and the future of traditional indoor malls is bleak given that many are stuck in the status quo and being sold off.

This story first appeared in the January 13, 2014 issue of WWD.  Subscribe Today.

That was the message retailers heard from industry leaders on a panel with a promising theme, “Re-imagining Main Street — How Brick and Mortar Retail Will Thrive in the 21st Century,” and a lot of straight talk.

“Foot traffic is off in some centers,” said Blake Nordstrom, president of Nordstrom Inc., one of the steadiest retailers in the country. Nordstrom said his business at Nordstrom’s full-line stores has been relatively flat or down slightly, while Nordstrom online has had some gains, and the Rack, Nordstrom’s outlet chain, is “growing like crazy.…The question is how to do we get that balance,” Nordstrom said, so the performance is solid across all the channels.

Nordstrom projected that this year, he expects, will bring “more of the same. It won’t be too different.”

Nordstrom also said he supported the notion that the economy is still fragile, echoing the words of another panelist, Rick Caruso, founder and chief executive officer of Caruso Affiliated, a real estate development company that owns the highly productive The Americana at Brand in Glendale, Calif., and The Grove in Los Angeles. “The economic recovery is moving forward, it’s fragile. People are still concerned about the economy. Generally, consumers and retailers are more positive,” said Caruso, though he tempered the sense of optimism by adding, “Clearly, we have to be aware it can turn very quickly.”

Caruso’s most provocative commentary came during his keynote speech preceding the panel: “Within 10 to 15 years, the typical U.S. mall, unless completely reinvented, will be seen as an historical anachronism, a 60-year-or-so aberration. It has outlived its usefulness.”

Aside from losing traffic and relevance, Caruso said there has not been a new indoor mall built since 2006. Instead, there are “so many malls being de-malled now. Larger companies are selling off their B and C malls.”

That doesn’t mean the end of brick-and-mortar, he suggested, citing such thriving centers as the famous Souk in Marrakech, the Champs-Élysées in Paris, the Tsukiji fish market in Tokyo, Florida Avenue in Buenos Aires and Maiden Lane, a two-block stretch in San Francisco. “What it lacks in length it makes up for with interesting shops.”

“How have these wonderful places lasted for centuries?” Caruso asked. “They meet a human need, not just a commercial one. People want to engage. They want a sense of community.”

He said to maintain relevance, shopping centers must provide atmosphere, an environment where people connect. They should also have beautiful architecture, landscaping and fountains. With all those elements, “Not only market share grows. Heart share grows,” Caruso said. He advocated designing retail properties not simply for people to shop but for people to enjoy, and that “mimic the natural rhythm and habits of human behavior.”

Caruso said the rebirth of retail, its paradigm for the future, is based on something very old and very enduring, as old as the Paleolithic cave paintings in Lascaux in southern France, which exude warmth, a sense of community and a magical experience, Caruso said. Moreover, in operating retail, you can’t just act like retailers, Caruso advised. “You have to be in the hospitality business as well.”

For Caruso, brick-and-mortar has a higher purpose, socially, compared with the Internet. “In spite of being connected online, people’s lives are increasingly lacking in real human interaction. We are undoubtedly connected electronically, but emotionally and personally, not so much.”

With his two properties, “The fact is, I am in the commodity business,” Caruso said. “What’s sold at my properties for the most part is sold at hundreds of other places nearby. They bypass other shopping areas and forgo online because of the atmosphere and experience.”

Caruso wrapped up by comparing the Souk in Marrakech with Amazon. “I saw Jeff Bezos on ‘60 Minutes.’ He was talking about the need to be disruptive. Internet people are always talking about the need to be disruptive. But other than war or catastrophe, I don’t think you can disrupt the Souk in Marrakech. It is part of the social fabric of the city. I bet the Souk will be around long after Amazon.”

Nordstrom and Caruso agreed retailing must be “experiential” to succeed, though Nordstrom stressed “the challenge is capital and having the wherewithal and the people to pull it off…to have the level of experience the customer is going to demand.”

Also on the panel, which was moderated by CNBC’s Sue Herera, were designer Rebecca Minkoff, and Candace Nelson, founder and pastry chef of Sprinkles Cupcakes. Minkoff advised brick-and-mortar operators to give customers “the VIP, celebrity feel,” while Nelson said her company likes to “embrace the crazy,” being the world’s first cupcake-only bakery with the world’s first cupcake ATM in Los Angeles. “You swipe your card and there’s a robotic arm that hands you a fresh cupcake.

“Cupcakes are still a luxury. Nobody needs a cupcake to survive. Try to focus on that feel-good, human experience. It’s the one thing brick-and-mortar has,” she said.

Also, at the NRF, six board members were added, each serving a three-year term. The new board members are ceo’s Myron “Mike” Ullman 3rd of J.C. Penney Co. Inc., Steve Knopik of Bealls Inc., Greg Sandfort of Tractor Supply Co., Bill Simon of Wal-Mart U.S., as well as SAP senior vice president and head of the global retail industry business unit Lori Mitchell-Keller and Utah Retail Merchants Association president Dave Davis.