What will increasing Internet sales mean for shopping centers across America? According to experts, the traditional shopping center experience is not about to go away anytime soon. But stores with marginal service and sales may find themselves out of business by 2002, according to Ken Cassar, analyst with Jupiter Communications Digital Commerce Group in New York.
"I certainly don't think that all malls will go out of business," Cassar says. "People are still going to go to the mall. Certain aspects, such as apparel, lend themselves to touching and feeling. But the marginal stores will be hurt.
"Its fair to say that mall retailers have not yet felt the impact of the Internet, but they gradually will," he continues. "They may not go out of business, but some stores in the mall will go under. The marginal performers today will be unprofitable because of the Internet."
For example, Jupiter predicts that 11% of book sales will occur online by 2002, which means some book stores at the mall may go under. And while many experts predict that Barnes & Noble will remain incredibly successful for some time, Cassar emphasized that the smaller book stores will be the ones hurt in the next three years.
The Internet represents a small percentage of total sales today, but it will have a significant part by 2002, Cassar predicted.
According to Jupiter, the top online sales last year were from the PC hardware market, which represented $2.1 billion in business/consumer sales incorporating 7.1% of the total business/consumer sales market.
The second-highest segment for online sales came from the software industry with $259 million in online sales representing 4.7% of total sales.
Book sales were the third-hottest E-commerce product, with $650 million in online sales for 1998, representing 2.5% of the total book sales market. Jupiter estimates that book sales will increase to $3.7 billion in sales in the next three years.
While apparel did not rank in the top three categories for online sales in 1998, Jupiter does expect this segment of the market to increase significantly by 2002.
"Total (online) apparel sales were $330 million in 1998, just .2% of the total apparel (sales), but we expect that to grow to $2.8 billion by 2002," Cassar says.
Obviously, numbers and statistics portray a narrow view of the industry, and depending upon the analyst group, numbers vary significantly. For instance, Emarketer.com compared the total projected consumer online shopping revenues for the year 2000 by 11 analyst companies. Surprisingly, they reported a wide range beginning with a modest $10 million in total projected sales estimated by The Yankee Group, to $32 billion in total projected sales predicted by Morgan Stanley.
But regardless of the projected figures, most analysts do not take a holistic approach and will not accurately predict the future for traditional shopping, according to Hugh F. Kelly, CRE with Landauer Associates in New York. It is not an apples to apples comparison because $1 spent on Internet shopping does not necessarily translate into $1 lost by traditional retailers, Kelly says.
"The principle of complementarity is the difference between a zero sum game," he says. "Most analysts of Internet shopping consider every dollar spent on the Internet as a dollar taken away from traditional [shopping] avenues. Or is it [Internet] creating an increased access to goods and awareness? Most commentators say it is taking sales away from stores. It ain't so."
Personal consumption expenditures in the United States exceed $5 trillion per year, according to Kelly, and he explained that sales of goods are less than half the total, at approximately $2.4 trillion. To put things in perspective, Kelly said that Internet sales in 1998 were not even .5% of all goods.
While Kelly admits that Internet sales will increase as analysts warn - some projecting total annual sales to be $37 billion by 2002 - he believes that the Internet will generate more spending, not just take money away from the malls.
"So, what about that huge growth rate?" Kelly says. "Even with the Internet commerce growing fifty-fold between 1996 and 2002, that is just $36 billion in added spending in this sector. Suppose total goods expenditures increase at a modest 3% overall, unadjusted for inflation. That equates to a spending rise of $450 billion over the period meaning that sales in traditional venues will grow by $414 billion ($450 billion minus $36 billion), or 11.5-times the amount of Internet sales growth.
"Even at its eye-catching growth rate, Internet sales in 2002 would still be just 0.8% of all retail sale of goods," Kelly explains.
The real estate veteran also predicts that E-commerce's effects on shopping malls will be similar to that of video sales to the movie industry. The analogy simply is the idea that video sales would take away from the sales of movie theater tickets. And Kelly said that just as people still go to the movies on Saturday night, but may rent a movie sometimes as well, people will still always go to the mall and sometimes buy something over the Internet as they would a catalog.
John Bucksbaum, executive vice president of Chicago-based General Growth Properties Inc., agrees. "We have not seen a reduction in shopping at the malls," Bucksbaum says. "Sales are up and very strong. Yes, I think customers want the best deal, but they will always like the intangibles, such as service, selection, the ability to browse, touch items, try them on."
General Growth is the nations second-largest owner, manager and developer of regional shopping malls. Its portfolio consists of 120 malls in 39 states and it also has two malls under construction in Dallas and Grand Rapids, Mich.
Instead of viewing the Internet as the enemy, Bucksbaum says he is leveraging technology to successfully position his malls for the future. In March, General Growth announced a venture with CoolSavings (www.coolsavings.com) to launch an Internet coupon Website for savings from local and national merchants at 36 of General Growth's regional shopping malls. Shoppers can visit the CoolSavings Website where they will be directed to coupons for their favorite stores, Bucksbaum says.
"A paradigm shift is occurring in the mall industries," he says. "The Internet is very, very big, and I think it's going to have an increasingly large impact on how business is conducted."
And although the Internet will have an impact on the mall industry, Bucksbaum plans to ride the wave to his advantage. The philosophy behind the CoolSavings deal is that it will appeal to those coupon clippers who respond to newspaper ads or direct mail campaigns, but it will be able to reach a larger audience more quickly. So, rather than competing with the Internet, General Growth plans to use it to drive more people to its malls.
Bucksbaum says he views the Internet as an opportunity. "Any imaginable idea is possible," he says. "You probably won't see some of the [Internet] companies that are popular today, tomorrow, because you're looking at the Internet in its infancy. We're experiencing a whole revolution if you will, and it won't be determined overnight. We're trying to explore a great many things."
General Growth is even considering establishing malls online. "We do see an opportunity to some day have complete malls online or some variation to take the next step," Bucksbaum says. "Almost anything is possible."
One reason why it is considering placing its malls online is the success of its corporate Website: www.generalgrowth.com.
"A lot of leasing activity has been generated through our corporate Website," he says. "It helps us get many deals made because of it."
The coupons with CoolSavings are General Growth's first step into Internet marketing, and he says its test runs met with "great reception" and were "surprisingly good."
While many analysts predict doom and gloom, Bucksbaum says he has felt no effect from the Internet at any of his malls. For instance, Christmas was one of the most successful at all of the General Growth malls - up a total of 5.2%, he says.
According to Jupiter Communications, $3.1 billion in business/consumer sales were conducted online during November and December 1998. The firm did not have a figure for the total sales that occurred at shopping malls in the United States, but Cassar says that Christmas online sales were a small percentage of the overall total.
According to Kelly, online sales at Christmas may have taken away from catalog sales. But in any case, both Kelly and Bucksbaum say they do not foresee an entire American culture going by the wayside due to the Internet. Teenagers will still meet on weekends at the mall, last-minute shoppers will need to rush and buy birthday, anniversary and Mother's Day presents. Families will still go and stool through the shops and let their children eat ice cream and play video games.
The mall is more than just shops, it has become a source of entertainment that even a producer of Yahoo! Shopping does not think will fade away because of the Internet.
"I am sort of a pioneer," says Paul Graham, a producer with Yahoo! Shopping. "I'm an online shopper myself, and I do still go to shopping centers. A lot of people go for the entertainment value. I might not go to buy a running shoe in a size 12, but many people go to take their kids or their girlfriends and browse through different stores."
"The Internet is not the end for shopping centers," Graham stresses.
And according to the producer of Yahoo! Shopping, online shopping centers really benefit niched, boutique shops that are not typically found in malls.
"In fact, small stores benefit the most from the Internet" Graham adds. "Take Victoria's Secret - they are big enough to print out and deliver a catalog. Small companies selling a more niched product, like refrigerator door magnets, can't do that. Fridgedoor.com is one of our stores that is doing really well."
But Yahoo! Shopping, which was established in November, does include many large retailers as well, such as FAO Schwartz, Crabtree & Evelyn and Fredericks of Hollywood.
The large stores that can be found in malls benefit as well from their Websites, but traditionally do the majority of their sales from brick and mortar stores. But it is all a matter of perspective. Owners of large shopping malls may feel differently than owners of retail chain stores, according to Graham. For stores like The Gap, Barnes & Noble and Eddie Bauer, having a presence online is necessary for branding.
"The Internet is good news [for owners of brick and mortar stores]," Graham says. "It's a way to get your brand in front of more people. Crabtree & Evelyn got off to a good start at Christmas when online shoppers who may be at the mall will recognize their name. It's cross fertilization."
So, having a store at a well-located shopping center and also a Website linked to a popular portal like Yahoo! will only bring sales up and cater to more people, those who do or do not like shopping at the mall or like to shop while at work. According to Graham, the peak time for online shopping is 3 p.m. PST when the largest numbers for both the East and West Coast are online.
Does that mean that sales are being taken away from the mall? Not necessarily, according to Kelly.
"People have ordered clothes from Lands End and JCPenney for years, and there is no reason why they shouldn't do so online," he says. "But the tactile experience will not go away."
Certain segments, such as software and hardware sales, will continue to increase online. But Kelly argues that does not mean extinction threatens computer and electronics stores. For example, as advances such as TV-based Internet access continue, people will go to electronics stores to see new items, browse and purchase them.
"Use the medium as another tool in your arsenal," Kelly says. "It is good for advertising, and it is great for generating customer awareness and developing knowledge about your customer base.
"Sites can be interactive retailer-to-consumer with great advantages," he adds. And as Graham points out, the Internet is a very inexpensive way to get your pictures and products in front of people.
After its first four months, Yahoo! Shopping now offers more than 595,306 products in general merchandise stores excluding book and CD stores, Graham says. This is due in part to online retailing's low cost.
For instance, Yahoo! Shopping charges only $100 a month for stores with 50 or fewer products to be hosted on its site. Stores with up to 1,000 products are charged $300 a month. For every additional 1,000 products, $100 more is charged per month.
And Yahoo! Shopping gives users tools to create their own stores online - another reason why smaller boutique stores are benefiting the most.
"The Internet is the biggest win for small stores. For every Wal-Mart online there are 200 Fridgedoors," Graham says.
For instance, one store that is doing very well is ArtiSan gifts.com. Cara Zanoff, the CEO of the online gift boutique, says she would never want to open a brick and mortar store and is benefiting from its Yahoo! presence.
Yahoo! Shopping was well received when its online doors opened with more than 4,000 merchants signed on. But Graham says that did not mean that all of the stores were taking away sales from the traditional venues.
For instance, Ben & Jerry's has a Website with Yahoo!, but how many people will realistically buy ice cream over the Internet? Once they see the site and view new flavors, shoppers may remember to buy some in a few days, however. And this type of advertising can be an inexpensive way to drive more shoppers to the mall.
1 Bluemountainarts.com
2 AOL Shopping Channel
3 Amazon.com
4 eBay.com
5 Cnet Software Download Services
6 Barnesandnoble.com
7 Cdnow.com
8 Columbiahouse.com
9 Musicblvd.com
10 Valupage.com