Member Thesis: The Connected Mall


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Long before retail was impacted by social distancing, the American mall was fighting for survival. Early signs of this were everywhere: perpetual discounting and promotion, insufficient staffing, stale inventory, and outdated storefronts. A number of these retailers are highly-leveraged assets, a culprit even a junior financial analyst could identify. As a result, a deluge of layoffs and closures began within two weeks of foot traffic falling. What will a healthy retail ecosystem look like when normalcy returns?

Introduction: The Dip and The Surge

With nearly 40% of retail square footage out of commission (and climbing), shopping malls are due for a flood of delinquent lease payments and permanent store closures. The majority of the 3.3 million Americans who have lost their jobs or were furloughed were service industry workers. This historically high unemployment rate will impact Class B and C malls disproportionately. An untold number of those jobs may return and most malls will take years to recover – if they ever do.

We’ve been building malls like there’s no tomorrow. America overbuilt.

Yaromir Steiner, CEO of Steiner and Associates

Select retail categories have seen 200-300% growth month over month between February and March. According to Apptopia, Walmart, Instacart, Amazon, and Target have seen 300-400% growth in app downloads. A number of digital marketing agencies are reporting that, despite growing economic tensions, their clients’ ad performance (and relevant sales) have remained steady. Consumer goods and essential products brands are reporting surges on Amazon. Target, Instacart, and other eCommerce companies are hiring a combined 600,000+ employees. We’ve reached a renaissance in essentials eCommerce.

“Where else do you go [for those items] — CVS? No one wants to leave their house right now,” said Catharine Dockery, founding partner in Vice Ventures, which backs Maude. [1]

With a growing number of cities under government orders to shelter, the consumer conversation has shifted from physical channels to direct-to-consumer (DTC). The shift trickled along and then happened all at once. The abrupt shift from analog to digital has been drastic. However, the extent in which it exists today will not last. Upon the return to normalcy, consumers will yearn for the public experiences that define our urban infrastructures: concerts, beer gardens, coveted restaurant reservations, and the in-person shopping spree. Initially, traditional retail will return to form in a v-shaped recovery. When society returns to normal, what’s left of restaurants and retail will return with it. But when the novelty of physical freedom subsides, what we will see is an amalgam of two philosophies. Brick-and-mortar retail is ripe for innovation; this thesis explains how I envision that innovation.

Background: America is Over-Retailed

In a December report, 2PM explained the fluid dynamics between mobility, eCommerce, and physical retail. Visualize it as a push and pull between dueling resources capable of great synergy. In most cities, they have reached a new equilibrium. The country’s twelfth largest metropolis, Central Ohio, is at the epicenter of a shift that will mirror in other cities, larger and smaller. The city’s history foreshadowed its next role in determining the landscape of other towns, cities, and villages throughout the United States.

“We are Test Market, U.S.A.,” said Irene Alvarez, director of marketing and communications for Columbus 2020, a trade group that promotes the region. “We decide the fate of cheeseburgers and presidents here in Columbus.” [2]

Formerly known as Test City, USA for its role in the boom in the fast food economy (Wendy’s, White Castle, and others are headquartered here), Columbus, Ohio is also a retail microcosm. The following mall retailers are headquartered here: DSW, L Brands, Abercrombie & Fitch, Victoria’s Secret, Express, Hollister, and Ascena Retail Group’s subsidiaries. Ascena includes: Justice, Ann Taylor, Loft, Lane Bryant, and Catherine’s.

The following is an excerpt of that December 2019 report [3]:

America is over-retailed. And unfortunately, innovation in online retail will exacerbate this. For Columbus (and many other forward-thinking cities), this is a conflict of interest. As regions shift toward mobile commerce-forward models, old ways of retailing will subside. And given early data  – the numerous retailers that are headquartered in and around the city would be placed at existential risk.

It’s for this reason that Columbus serves a microcosm of traditional retail as a whole. The industry will have to choose between its past and its future, both of which are tied to shifts in mobility innovation.  Like Steve Jobs said in 1995: “People are going to stop going to a lot of stores. And they’re going to buy stuff over the web.” This is beginning to reflect in public and private markets. What happens when we stop driving to stores? What happens when shopping centers no longer have sufficient demand? What happens when advancements in last-mile delivery becomes carbon negative? This is happening now.

We should begin thinking of malls as operating systems: layers of retailer tools and consumer efficiencies. This next section summarizes hours of conversations, thousands of words of email, and countless hours of ruminating on retail as a component of city planning. This is one part sociology, one part retail economics, and two parts futurism. Whomever executes on this will own that future.

The Connected Mall and RetailerS


This is where things get interesting. I’m of the belief that each major city can support one Connected Mall. Columbus has three candidates: Easton Town Center, Polaris Fashion Place (Washington Prime), and The Mall at Tuttle (Simon Property Group). Each are considered “Class A”, though Tuttle has quickly diminished in quality. According to, the two most vulnerable malls were also designed in nicer suburbs. Founded in 1999, Easton Town Center set out to build its own district – modeled after the vision of architectural pioneer Victor Gruen and his ringstrasse-inspired design.

[Gruen’s] inspired and futuristic idealism for the town center-styled retail center (inspired by Vienna’s Ringstrasse) was overshadowed by socio-economic turmoil that he couldn’t have envisioned. [4]

Instead of relying on a suburban population for demand, Easton Town Center began forging its own demand generation with high end condominiums, hotels, and offices peppered within the development’s core. As the development grew, its core customer moved upmarket from middle-class to upper. This trend will continue, partially explaining Easton’s increase in demand vs. its peers (see 2PM data here). In short, it’s aspirational. The development’s emphasis on experiential retail, which separates it from its peers, is a similar distinction that you’ll observe in a number of cities across the country. Each major city has attempt a town center, few have matched Easton’s depth and appeal.

I typically err on the side of premium as the KPI for sustainability. In this scenario, Polaris would currently earn the vote: it sits betwixt a number of upper-class suburbs and is home to the region’s only mass purveyor of luxury goods, Saks Fifth Avenue. But Polaris and Tuttle are traditional, enclosed malls. This architectural model has a built-in disadvantage: it’s slow to evolve.

Over the course of the last eight to twelve months, I’ve sat with a number of retail developers from companies like Macerich, Brookfield, and Simon Properties. The savviest retail developers are searching for their next innovations.

The Connected Mall is the big idea that may help retail developers evolve with the needs of modernizing cities. This visualization explains the approach:


Easton Town Center is a living, breathing linear commerce model on the heels of completing a $500 million addition. In 2PM’s Connected Mall model, Easton would continue to develop its exurban “city within a city.” Building mechanisms for organic demand is key to retail sustainability. But the next phases of the connected model are two-fold.

A lack of omni-channel fluency has been but one of the weaknesses established in this flash recession. Judging by the swift and decisive layoff actions made by a number of Columbus retail executives – including DSW, Green Growth Brands, and more – few were prepared to shift their attentions to DTC channels. And even fewer mall retailers were prepared for a drastic lapse in foot traffic. While it’s typical for retailers to have eCommerce sites of their own, few have last-mile capabilities to make same-day delivery a value proposition. This is even more the case for Main Street retailers, whose entire models are built on foot traffic.

The Connected Mall is a philosophy that could be applied to Easton’s existing business model: (1) a value-add to existing retailers (2) a recruitment tool for new retail partners (3) a sales-channel for a region’s consumers. There are three layers of execution: marketplace, physical expansion, and last-mile delivery. Below, you’ll find the components:

Hardware: an inventory tracking system.

For the retailers that participate in this format, they’d opt-in to have their inventory tracked and SKUs photographed for presentation within the marketplace and/or associate mobile application. The challenge is establishing one inventory tracking system that could communicate to enterprise-level retailers (department stores, luxury sellers) and independent retailers alike. In the 2PM Report, The Last Mile Marketplace, 2PM explained the prescient Google acquisition of Pointy, a physical device that reads point-of-sale (POS) system data.

Acquired for $163 million, Pointy’s outcome reminds me of Google’s Android acquisition or Facebook’s purchase of Instagram for $1 billion. It’s the type of corporate development deal that could shape the industry for years to come. […] While Facebook is building traditional commerce infrastructure to democratize access to retail technologies, Google took the “OpenTable approach.” By tying into the backend systems of physical retailers, Google now owns a marketplace. [5]

While Google’s acquisition is just one example of a solution, the precedent has clearly been set to solve this problem at scale.

Software: a localized digital storefront.

There is an opportunity in merchandising a mall’s retail partners, allowing those retailers to sell to regional consumers who prefer to shop online rather than in stores. This approach mirrors Alibaba’s Tmall approach, one detailed in 2PM Member Report: The China Strategy.

Alibaba recently signed Net-A-Porter into their Luxury Pavillion. Owned by Richemont, Net-a-Porter is the internet’s foremost retailer of luxury products. Richemont also owns the likes of Cartier, Montblanc, Panerai, Vacheron, and IWC. These brands will likely make a direct to consumer play through Alibaba’s Tmall invite-only luxury platform, as well. [6]

Whether through a desktop, mobile, or app-based treatment – this system would allow a city’s residents to interact with the mall without physically traveling to it. This provides the same value as apps like DoorDash, Postmates, and UberEats, but with one added value. Those apps are limited by their inability to track real-time inventory. Few retailers are willing to cede their inventory and sales data to a third-party. Additionally, margin is opportunity. And with the Connected Mall, the retailer’s margin is not shared with the marketplace.

Personnel: a white glove mobility partner.

In Columbus, a well-positioned company called Citrin bills itself as an automotive valet, porter, and employee management leader. With hundreds of citywide employees and last-mile partnerships with luxury car dealerships, Citrin is an existing partner to Easton Mall. The porter service provides valet to a number of businesses on the premises. This is just one example of repurposing existing resources to fill a critical need for an innovative project. With a mandate of one to two-hour delivery, a customer premium of $25-40 per order would cover the costs of most deliveries made within a 17-20 mile radius of the Easton Town Center.

Real Estate Acquisition: innovative expansion and opportunity creation.

In the early days of America’s COVID-19 scare, it was immediately evident that independent retailers would be hardest hit by this catastrophe. In Columbus and beyond, a number of these owner-led storefronts suffered from a lack of foot traffic, forced closures, waning demand, and inadequate technical infrastructure. In theory, the Connected Mall expands throughout the city, repurposing idle or sub-optimal retail square footage to serve as extensions of the primary location.

42iwh2CIIn this concept, the auxiliary stores are branded with Easton’s trademarks, signaling digital marketplace-inclusion, last-mile availability, and a level of service that is consistent with one of the brightest retail developments in the midwest. The Connected Mall model serves as a retail operating system, supply growth and opportunity to an evolving city.

Not only would a partnership like this make idle retail square footage more appealing, it would redefine the mall in the early stages of an economy that will eventually become online-first rather than online-second.


Imagine a city with its premier mall’s outposts situated throughout its key neighborhoods. In the Bexley area, a row of designer houses: Celine, Louis Vuitton, and a Lululemon Lab. In Upper Arlington, an Untuckit and a Bonobos side by side. And in the college district, a test store for Hollister’s latest attempt at reinvention. And next to it, a Glossier.

It is important to appropriately react to the detrimental impact that immobility is having on physical retail as an industry. We’re not living through a temporary present. Rather, it’s a derivative of the future. Though this exact present will not linger, its effects will.  We are witnessing a shade of how retail will evolve. A number of retailers – big and small – will be ill-prepared for a retail blend that is closer to China’s 40% eCommerce penetration.

February 2020’s America sat at 11.2%. March 2020’s America is likely exceeding 60-70% eCommerce penetration. What does this mean? And how can we account for the changes to come?

For two decades, Amazon sat on a patent that provided it a technical advantage: one-click purchasing. And then, Amazon built another advantage that they could not patent – last-mile supremacy. Both are available to innovate upon, today. What this should communicate is that ease and convenience are the forerunners to conversion. Malls will always thrive as experiential distractions. But sometimes, a consumer wants a pair of pants from Saks at their door and before dinner. A Connected Mall can compete for a consumer in ways that Amazon cannot.

This is the opportunity to bridge the past, the present, and our eventual future. The premium experience of the physical mall will remain a component of American consumerism. But what the COVID-19 experience has shown is its vulnerability. The mall is missed but it certainly isn’t necessary. To become so, malls like Easton Town Center must become more of utility. This is how.

Thesis by Web Smith | Edit: Hilary Milnes | Art: Andrew Haynes | About 2PM

For a deeper understanding of an evolving eCommerce GMV, you can read the latest by Channel Advisor. 

Member Brief: On Neo-Traditional Development

Think back to your youth. When you visited your local malls in in the 1990s or early 2000s, they resembled marketplaces of vendors and major retailers. It was a living and breathing brochure of SKUs. Back then, storefronts didn’t require special features, personality, or experiential qualities. Consumers were there to discover, to shop, and to transact. Today, the malls that are still ascendant are something different than what we remember. The malls that failed to evolve are crumbling beneath the weight of changing consumer preferences, personal technologies, and faltering specialty retailers.

This content is designed exclusively for the Executive Membership.

Memo: The Gilded Age 2.0


Mark Twain once wrote, “History doesn’t repeat itself but it often rhymes.” According to historians, the groundwork for the New Gilded Age began in 1990. Nearly 30 years later, the age of the “robber baron” industrialist and the cutthroat financier has returned. Since that time, there are few industries that have seen the magnitude of disruption that housing and retail have endured. Nearly 26,000 stores have closed in the past three years; 2019 will double 2018’s closures. There are echoes of this bifurcation throughout the physical and digital spaces of commerce. Contrary to popular opinion, retail isn’t dying. Instead: changes in earnings, increased debt loads, and decreased consumption rates are beginning to polarize some consumers. The middle is being squeezed and retail failed to anticipate this socio-economic shift.

“The retail reckoning has only just begun.” Those are the words of reporter Jack Hough who released a blockbuster, paywalled report for Barron’s. But reckoning and death are not necessarily synonyms in this context. Retail is not dying, it is bifurcating. In The Ballad of Victor Gruen, the boom and bust of retail real estate is explained through the lens of socio-politics and tax policy:

Source: Barron’s

According to CNBC reporter Lauren Thomas, apparel mall retail profits are at recession levels. As of June 2019, Macerich, Simon Properties, Kimco, Washington Prime Group, and Taubman properties are trading at five-year lows. There aren’t enough viable challenger brands (DTC) to fill the 67,000+ store closures projected by 2026. So, it’s difficult to determine whether or not an American retail empire built on post-war consumerism, suburbanization, and accelerated depreciation will return to its former glory. But when we wonder how the “retail apocalypse” happened, look to 1954.[1]

Per capita, America is over-retailed; it always has been. But for nearly 60 years of suburban retail expansion, it seemed as though the industry would never contract. According to Randal Konik, an analyst with Jefferies: “There are about 1,350 enclosed malls in the United States but only 200 to 400 are needed.” But while retail stores shutter, sales are expected to grow 3.5% to $3.7 trillion. According to reports by UBS, it may take ten years to reach the equilibrium (1,350 to 200). The investment bank forecasts 75,000 additional stores closing in that time.

To better understand who the store closures are targeting, we must first consider the definition of the middle class – a shrinking cohort of the American consumer. There’s a great chance that if you’re reading this, you are statistically in the upper middle and wealth classes and gaining. That group earns greater than $140,901 in annual household income.

Income | Source: Pew Research and CNN
Typical consumption | Source: Pew Research and CNN

But for many hard working, middle Americans, something is lost in translation. With inflation, under-employment, rises in college tuition, mounting consumer debt, and healthcare costs – typical consumption has fallen. And families who earn a comfortable wage are living closer to the lower end of the middle-class range or below. In short, levels of wealth are polarizing and retail’s bifurcation is following suit.

Understanding the Gilded Age

The times of mining bonanza kings, railroad barons, merchant princes, bankers, generational trusts, and utility tycoons were rife with brute capitalism and a stark economically inequality that America hadn’t seen before. The country began to lead the world in the production and refinement of valuable goods and services. For the select few who benefited, new, economic monarchies were forged. For everyone else, life seemed more like scene from Sinclair’s “The Jungle.”

If you’ve ever had the good fortune of visiting Newport, Rhode Island – you’d recognize something peculiar: The Gilded Age presents itself in certain areas of the city like the era was never replaced by the middle-class boom. Between 1870 and 1900, three of the largest and most extravagant homes in America were constructed along the shores of the beautiful New England city. Of these palatial homes is what many consider the crown jewel: The Breakers. On 14 acres, the 65,000 square foot mansion serves as an archetypal memory of the age of industrialism. Cornelius Vanderbilt II bought the land for $450,000 in 1885 and finished construction on the 70+ room “summer cottage” in 1895.

As a student, I walked the halls of The Breakers with several of my classmates. We’d never seen anything like it before. Frankly, I was in shock. Growing up squarely in the middle class, I could barely imagine living in 4,000 square feet. But in the structure that harkened to the Italian renaissance, we marveled at a family’s home that spanned an entire acre of land. I didn’t know that this level of wealth existed and I surely had yet to see any of modern derivatives of that boom’s past. Castles were for history books and midieval films, or so I thought.

The rich get richer and the poor get – children.

F. Scott Fitzgerald

There are a number of Gilded Age-era homes across the United States; many have been repurposed into public buildings and monuments to the era. San Francisco has the mansions of their Big Four. Just a ways away, you’ll find the Hearst Castle. Connecticut is home to the Lauder Greenway estate. Massachusetts has The Mount. And of course, the streets of New York are peppered with homes like the Arden, Indian Neck, Olana, and Woodlea – the now-home of the Sleepy Hollow Country Club. In all, there are nearly 80 homes of this caliber in America. Not one was built after Jay Gatsby’s 1920s. That is, until recently.

There’s a paragraph in the recently published The Triumph of Money in America by Jack Beatty:

But, brazen as it was, inequality then conformed to the pattern of the unequal past. Not so inequality in what publications from the Atlantic Monthly to Seattle Weekly have denominated the “New Gilded Age,” when for every additional dollar earned by the bottom 90 percent of the income distribution, the top .01 percent earn $18,000. From 1950 to 1970, they erned $162. […] Paul Krugman notes, “Not since the Gilded Age has America witnessed a similar widening of the income gap.

The Gilded Age was a salicious spectacle of glory and tragedy. It seems that we are on the precipice of another flashpoint, where years of quiet build-up led to an “aha!” moment. Housing, mounting middle-class consumer debt, and retail trends all seem to point in that direction. Consider last mile delivery services like DoorDash or GrubHub, a luxury experienced by the upper-middle and wealth classes. But a job that takes advantage of the underemployed – many of whom are likely white collar professionals fighting to remain somewhere in the depleting middle.

There is a polarization of American wealth and it’s progressing at a dizzying pace. Look no further than San Francisco, where the newly homeless camp against the walls of four and five star hotels. The dichotomy is striking. Or consider New York City, where there may be slightly less of a wealth disparity (to the blind eye). Yet, the city’s private helicopter traffic is growing noisier while the subway system is failing many who are fighting to remain in the middle class. There are as many last mile workers on the streets of New York as there are pedestrians at times. A noticeable number of New York’s miles of retail storefonts lie vacant.

In 2018, USA Today reporter Rick Hampson wrote: “That time (roughly 1870-1900) shares much with our time: economic inequality and technological innovation; conspicuous consumption and philanthropy; monopolistic power and populist rebellion, […] and change —  constant, exhilarating, frightening.” Understanding the mirrored socio-economic patterns of then and now should profoundly impact the retail operations of today.

Gilded AGE 2.0 And Modern Retail

Sears, the once-famed retailer earned its beginning in the Gilded Age. Richards Sears, a railroad worker, founded R.W. Sears in Minnesota. Operating as a reseller of jewelry and watches, early success moved the business to Chicago where he met and hired Alvah Roebuck. The retail founder and the watchmaker built an innovative business: they’d own products and brands and sell direct to consumer. A predecessor of eCommerce, today. On the heels of direct-sales and catalogue success, the retailer went public in 1906 [2].

Sears went public with preferred shares selling at $97.50 each, or more than $2,500 now. Goldman Sachs managed the offering. That year, Sears also opened a mail-order distribution center on Chicago’s West Side that, with three million square feet of floor space, was among the largest buildings of its kind in the world.

The boom of Sears’ brick and mortar growth relied the boom of rural and suburban penetration throughout America. Nearly sixty years of fortune followed. Richard Sears adjusted for the times. A business built for the wealthy became a symbol of the burgeoning middle-class. He saw the opportunity, I suppose.

Online retail sales as percentage of total retail | Source: eMarketer 2018

Fast forward to 2019 and retail’s lines of my demarcation are clear as ever. Online retail has been adopted by nearly a quarter of Chinese citizens and across the country’s economic strata. In the United States, the makeup of online retail customers skews towards the affluent. Amazon Prime’s membership boasts over 110 million users, or a third of all of American households. Of all internet consumers, 66.3% of those who earn over $150,000 use Amazon Prime. Just 31.6% of those who earn $35,000 annually have purchased the membership.

The suburbs are overstored and undershopped, and experts say only the top 20% of malls are thriving.[WWD]

Online retail and “Tier A” malls attract an affluent consumer. Off-price physical retailers and “Tier C” malls skew towards the economically-distressed. Between 2018 and 2019, the following specialty retailers have shuttered en masse: Nine West, Claire’s, Brookstone, Samuel’s, Mattress Firm, Sears, David’s Bridal, Charlotte Russe, Payless, Gymboree, Topshop, J. Crew, J.C. Penney, Pier 1 Imports, and DressBarn.

More closures are to come. Of them: GAP and L Brands will accelerate closures, further diminishing middle class retail. Not only are we witnessing a polarization of American wealth at a dizzying pace, it is now reflecting in retail real estate. The institutions for the affluent have remained steady, in some cases contributing to a growing retail sector. The institutions for the economically-distressed are also doing quite well. Historically, off-price and luxury retail were at the periphery. If these trends continue, these two cohorts may become the collective majority.

There are implications for digital-natives. Consider the rising customer acquisition costs of today’s direct to consumer business. Facebook, Instagram, and Google’s advertising inventory have remained static while the volume of DTC founders who launch companies continues to rise. Rather than a go-to-market that appeals to a growing number of modern luxury consumers and HENRY’s (high earners, not rich yet), many DTC brands optimize message, branding, and ad spend to reach a contracting number of middle-class consumers. Or worse, off-price consumers who’ve yet to fully adopt online retail as a method of consumption. It’s unclear whether or not this dynamic is contributing to a rising CAC but the shifting dynamics of an audience should concern marketers.

Meanwhile, off-price digital natives like Brandless and have struggled as they focus on forms of bargain-driven promotion. While over 100 million Americans use Amazon Prime, we’re still at 11-13% of retail being attributed to online transactions. The United States is still in the early stage of eCommerce adoption; as such, off-price consumers continue to lag behind in the adoption curve. It’s reasonable to assume that this contributed to what may have been an overestimation of total addressable market (TAM) for retailers in the off-price category. Brandless has since adjusted their strategy to appeal to more affluent shoppers. “The average order value today needs to move from $48 to probably $70 or $80,” the words of Brandless’new CEO who has committed to charging more for products, leaving behind the company’s bargain basement strategy.

This era has begun to reveal sharp contrasts in how Americans approach the consumption of goods and services. Net consumption continues to grow despite a catastrophic number of store closures. Some in retail and media are quietly recognizing that the most competitive approach to growth is the pursuit of the modern luxury consumer – a cohort that seems to be invulnerable to these shifts. Products have become more exclusive, with higher quality production, and superior service. As online retail penetration continues to grow from 11% to levels resembling China’s, off-price retailers will begin to see more success – a notion that should bode well for Walmart, Costco, and others.

While history doesn’t repeat itself, it does rhyme. The economically-disadvantaged deliver food, novelties, alcohol, and commodities to urban sprawls and gated suburbs – within the hour. Across the country, the net worths of the top 1% have become noticeable as conspicuous consumption of products and services have risen; the rise of platforms like StockX, Hodinkee, and Uncrate demonstrate this. For the top .01%, there are more 40,000+ square foot homes than their were in the Roaring 20’s. Retail is responding to economic realities of today. Wealth is galvanizing; retail strategies should adjust to meet the shifts head on.

The term retail apocalypse has always been an uncomfortable generalization to make. This research suggests that it’s also an innacurate one. Rather, Gilded Age 2.0 is a casualty of the middle class; a consumer that emerged in response to the industrial and financial booms of the late 19th century. The early 21st century resembles a time when the middle barely existed. It was an unfortunate time of boom or bust, feast or famine. For commerce and its adjacent industries – 2.0 is a correction that can no longer be ignored.

Research and Report by Web Smith | About 2PM