No. 272: A “Tier A” Path Forward


The worst thing to happen to the American mall is the boom of online-first modern luxury companies. And it’s also the best thing to happen to the American mall.

There are 1,100+ malls in America and approximately 320 are graded Tier A. We have an oversupply of malls but that does not mean that traditional, anchored shopping centers no longer have a place in consumerism. We’d argue that Tier A malls have yet to see their best years. We expect their footfall traffic KPIs to grow, while B and C tiered malls continue their trends toward repurposed real estate and other methods to maintain footfall traffic KPIs (mall opportunity, sales opportunity, and store performance).

Suzanne Mulvee, director of research at CoStar, cites that “lower-quality malls in markets with smaller populations and lower incomes will continue to close” —a trend that persists today. And here’s a data based position:

Green Street Advisors, a research firm, forecast a 6.0 percent drop in market revenue per available foot (RevPaF) for class-B and -C malls from 2018 to 2022, versus a 0.5 percent increase for class-A malls during the same period. 

Private market values of class-B and -C malls have also dropped the most since January 2017, according to Green Street, plunging 27.0 percent and 25.0 percent, respectively, year-over-year. Meanwhile, the values of class-A malls declined by 14.0 percent year-over-year.

National Real Estate Investor

So what does this mean for digitally vertical native brands (DNVB), old and new? In short, online-first brands should be positioning their product offering for inclusion in Tier A malls. First, let’s look at the established. A retail presence for DNVBs varies, as such:

  • Harry’s has a prominent position in J. Crew shops (Tier A)
  • Shinola has marquee positioning as stand alone stores (Tier A)
  • Mizzen + Main has prominent position at Nordstrom (Tier A)
  • Bevel has showroom real estate at Macys (Tier A / B)
  • Warby Parker has great stand alone stores (Tier A)
  • Greats has marquee positioning at Nordstrom (Tier A)
  • Ministry of Supply has great stand alone stores in Tier A areas
  • Homage has great stand alone stores (Tier A)
  • Bonobos has stand alone stores and Nordstrom positioning (Tier A)
  • MeUndies has positioning at Nordstrom (Tier A)
  • Goop is opening sponsored pop ups (Tier A)

There are very few presences in Tier B malls and virtually no DNVB presence in Tier C malls. These brands have done a wonderful job positioning themselves as modern luxury companies. They’ve been incubated online for five to ten years and they’ve become prominent enough to live as lifestyle brands in traditional retail spaces. It’s a forgone conclusion that omni-channel operations should be a focus for DNVBs; retail real estate analysis is a skill that is becoming more and more important. And DNVB’s are well-positioned to benefit from the Tier A adoption of the online brands. Recall this quote from Issue No. 265:

2PM’s Meghan Terwilliger had this to say:

Luxury, however you define it, is a brand’s embodiment of characteristics that make it desirable. Historically, those characteristics have been more ‘What’ features like quality, exclusivity, and cost. You can still define luxury as characteristics that make a brand desirable, but those characteristics have shifted. Quality is table stakes.

The characteristics that make brands more desirable are ‘how’ features like excellent customer experience (how do I experience the brand), meaningful brand mission (how do they give back/make a difference), and community engagement. Is it artist-created and excessively expensive? Maybe not. But if it is a product, or even an entire experience that is highly desirable, it can be considered a luxurious brand. DNVBs just so happen to possess a great infrastructure to support the characteristics that define modern luxury.

There are DNVBs that are launching daily. It is important that these brands understand that online retail mechanics has its limits. For these brands to expand into $30 million or more in annual revenue, omni-channel strategy can provide longterm growth. Additionally, this can reinvigorate top funnel sales through online channels.

Here are the top five suggestions for DNVBs launching today:

  • Master the first product. Bonobos began with pants, Mizzen + Main with a single white dress shirt, and Bevel with one blade.
  • Develop a strong sense of product ambassadorship. Mizzen + Main targets millennials, but the most capable buyers are between the age of 34-45. Developing a sense of loyalty with them can pay dividends. For their peers that don’t shop online, they’ll become a top funnel driver of them to your brick and mortar locations.
  • Avoid discount promotion, even at the beginning. Price stability over time is crucial. The moment that a brand is seen as a discounter, the Tier A mall demographic loses interest (with few exceptions).
  • Emphasize advertising to Tier A mall consumers. When DNVB’s grow online, they need to focus on the customers that possess the greatest LTV (lifetime value) potential. This correlates with Tier A mall shoppers.
  • Establish relationships with non-competitive retailers. It can be a powerful signal of longterm viability when existing brands co-sign your early product. This is most often seen by way of product collaborations, cross-promotion, or merchandising your products in their flagship stores.

Retailers that appeal to…the upper class are thriving. One look at Houston’s Galleria, Columbus’ Easton Town Center, or Miami’s Bal Harbour Shops will confirm as such. This is the future that many in retail are planning for. So no, retail is not dead. But retail is leaving the middle class behind because, frankly, so are we.

2PM Member Brief No. 5

In the first sentence, I wrote that online retail is the best and worst thing to happen to malls. In many ways, this is true. The shuttering of weaker retailers and shopping centers is long overdue. Experts attribute this trend to the emergence of online retail brands (and the excessive private equity debt that these retailers accrued to compete with them).

We have more retail real estate than any developed country on earth. Malls are not dying, the bad ones are. While eCommerce efficiency is appealing to digital marketers, the brick and mortar channel is golden for brand operatives who are establishing their brands as modern luxury products. Marketing is arithmetic, whereas brand-building is more of a subjective art. If you were to ask the chief executives at each of the aforementioned brands, they would point to their brick and mortar successes as great milestones. There will be fewer malls in the coming the years, but an early bet on the ones that remain will position young DNVBs for omni-channel success.

Read the rest of the issue.

By Web Smith and Meghan Terwilliger | About 2PM 

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