The retail real estate industry finds itself at a crossroads. One fork leads to a problematic Darwinian scenario in which weak centers and malls continue to close due to changing demographics and/or digital competition. The other path leads to a future that has never looked better, at least for those willing to invest in it and evolve into what we call consumer engagement spaces (CESs)—transformed mixed-use commercial offerings designed to meet the needs of future generations of shoppers.

Where We Came From and Where We Are

Historically, malls and shopping centers have been thought of as aggregations of retail offerings arranged in a variety of formats from strip and open-air to fully enclosed. Critics argue consumers have outgrown malls. Other observers counter that commercial institutions evolve and that the future of shopping centers has never looked more promising. We agree.

Future CESs will be environments where people gather to engage with friends, seek out unique experiences, reaffirm values, and interactively relate to brands. Transactions will be a by-product of socialization and engagement. CESs may resemble today’s shopping centers and malls or look quite different, but their common focus will be on creating platforms that facilitate sales by recognizing, understanding, affirming, and connecting individuals.

Forces of Change

Retail success begins and ends with a competitive understanding of consumer change. Today, for the first time in history, the market serves six generations of shoppers: the Silent Generation, Baby Boomers, Gen X, Millennials, Gen Z, and Alphas. Operators must choose which approach to take: serve the needs of a specific cohort; develop multiple strategies that align against multiple cohorts; or develop retail offerings that cut across cohorts.

When the Southdale Center opened its doors as America’s first enclosed, climate-controlled shopping mall in Edina, MN, on October 8, 1956, the oldest Baby Boomer was only 10. As post-World War II prosperity made automobile ownership accessible to the growing middle class, Boomers’ parents abandoned cities for life in the suburbs and retail real estate followed the people. Total U.S. shopping center growth dramatically outpaced population growth, especially in the 1960s and 1970s.

Baby Boomers continue to exert disproportionate economic influence, but Millennials, Gen Z, and Alphas are the “Consumers of the Future” – a multigenerational market driving demand, but operating under an asymmetrical model of intra-generational wealth transfer.

By 2030 every Boomer will be over 65, and our original Boomers will be celebrating their 84th birthdays; meanwhile, the youngest of the 20.8 million Alphas will only be five years old, and 40 percent of all consumers will be digital natives. The future fortunes of CESs in 2030 will depend on how well retailers integrate their technologies with those of their customers.

Plug In, Turn On, Shop Out

Retailers and CES operators will need to master two sets of technologies: the ones consumers use to order their lives; and those businesses use to identify individual shoppers, track purchases, analyze behavior, communicate with customers, and create real-time commercial opportunities.

Consumers’ technology choices will create personalized “digital ecologies”—combinations of connected tools, from bots such as Kik Bot Shop and WeChat to voice-activated AI agents such as Google Now and Amazon.com’s Alexa, and smart appliances and cars.

As machine learning evolves from pattern recognition to cognitive intelligence, consumers will expect—and demand—highly curated, frictionless shopping experiences, from product recommendations and selections queued up for them by their AI assistants as they enter a store to the automated, unmanned, “just walk out” stores for relevant categories.

Some physical retail spaces will take the form of smaller, “smart,” dynamic formats serving as hubs for interactive brand experiences. Others may be “inventory-light” retail environments for “showrooming” brands, products, and services that support and complement, rather than compete with digital businesses. Pop-ups will offer CES operators an easy way to change their vendor population, providing consumers with unexpected “treasure hunting” experiences.

New consumers have an expressed preference for “doing” over “owning.” As a result, we anticipate the emergence of rich experience hubs. These will be physical spaces inside CESs that use immersive technologies such as virtual and augmented reality to create unique environments.

Thinking Outside the Box

Regardless of what form they take, all CESs will share three common characteristics—creative approaches to:

• How we shop. CESs will reflect and embody the fundamental shift from the mass market, “push” approach of years past to a consumer-driven, “pull” system.
• Competition. Past competition was measured in terms of metrics such as market share, sales per square foot, margin elasticity, and traffic count. Future competitive effectiveness will be judged by a whole new set of criteria including access to—and completeness of—consumer information, the effectiveness of ongoing data collection and algorithm development, and the real-time ability to translate social media memes into “smart” inventory management and merchandising strategies.
• Context. While all CESs will be information-driven and consumer-focused, they won’t necessarily resemble each other. They will come in a variety of shapes and sizes—some organized around a traditional retail anchor, others possibly commercial extensions of a residential community. They may feature fewer stores, smaller stores, radically redesigned stores, and in some cases even larger stores.

Emerging retail models and changing consumer preferences will transform our current ideas about successful tenant mix. Local and artisan brands will co-mingle with national retailers. Product portfolios will shift to goods and services less susceptible to disintermediation and auto-replenishment. Subscription, sharing, and re-commerce platforms will expand their physical footprints. Non-retailers will account for a larger percentage of the tenant mix.

Without limiting the possibilities, we believe that the majority of CESs will fall into four basic categories:

1. Destination centers: Regional centers anchored by large attractions that draw from extended trading areas and offering compelling attractions such as theme parks, installations such as indoor ski slopes, large cinemas and theaters, museums and art galleries, event space for concerts, food festivals and themed gatherings. Destination centers, like Xanadu in Spain, the Mall of the Emirates in Dubai, and our own American Dream Centers, under construction in New Jersey and Miami, offer visitors total weekend experiences.
2. Values centers: Smaller centers drawing their identity from the surrounding community, a values statement such as animal rights, an even a thematic idea. In the animal rights example, all restaurants might be vegan or vegetarian, leather goods and furs might not be sold, and activists might be given free meeting or speaking space.
3. Innovation centers: “Smart” CESs where participating tenants pool data and ethnographic observation, social psychological analysis, and other tools to satisfy shoppers and evolve along with them. A subset of these CESs—call them beta centers—may be pure tech plays where every store in a smart, active retail environment features the latest in high technology, some available for sale and some being tested.
4. Retaildential space: Mixed-use CESs targeting a specific consumer segment such as young urban hipster professionals, single-and-staying-that-way 40-somethings, or senior living environments. These highly curated “lifestage centers” will offer a demographic-specific and appropriate set of retail, restaurants, entertainment, and services. Developers such as Aeon Co. are already repurposing some of their malls to address the needs of Japan’s advanced aging population.

Today, innovative retailers and center operators, are redefining the “art of the possible” on a daily basis. Tomorrow’s success will belong to those operators and tenants willing to break from yesterday’s patterns and practices and fully embrace a consumer-driven future.

Learn more: 4 Visions of the Future of Shopping Centers.