The ongoing debate about the ultimate fate of America\’s shopping malls has largely centered on their transition from dedicated spaces to buy stuff to centers where non-shopping functions such as eating, entertainment and services are a large part of the mix. And while that transformation is in full swing, an even more important metamorphosis – largely unreported – is taking place, one that will have as much impact on the sector as any of the more obvious ones.

In a slow but now accelerating pattern, wholesalers who used to count on selling their products through third parties like department and multi-brand specialty stores are now taking control of their distribution through their own branded stores. While many of these wholesalers have had stores for years, this direct-to-consumer model is now coming to dominate many of the \”A\” malls that remain the more vibrant retailing spaces in the business, redefining the tenant mix in a way we haven\’t seen the advent of store-as-brand players like Gap, Victoria\’s Secret and Pottery Barn.

A Brief History

First, some historical context. Since the invention of the modern American shopping center in the post-war period of the late 1940s and early 1950s, malls have been dominated by national chains that sold a variety of brands under one roof. These stores still exist in malls today: think of Foot Locker for shoes and sneakers, chains like Mori selling luggage and the countless jewelry stores that offer multiple watch and accessories brands.

Over the past few decades these multi-brand stores were supplemented – and then pretty much usurped – by brand-as-store retailers. These are the ones who sell a single brand, available only at the company\’s own stores. (And more recently online, again only at their own sites.) JCrew, Williams Sonoma and Abercrombie & Fitch are other examples of this format. But both formats – multi-brand stores and brand-as-store retailers – have now been displaced by a third format, one that offers a very different dynamic: wholesaler-direct. These are suppliers whose products were once primarily offered at multi-brand stores like department stores but who are now focused on their own stores selling just their own products. By controlling their own distribution and going direct to the consumer, they are bypassing weakened formats like department stores, as well as the declining number of multi-brand specialty retailers.

New Mall Model

Be they manufacturers of apparel and footwear like Coach, Nike and Diesel, or of jewelry like Pandora and David Yurman or luxury brands like Chanel, Fendi or Louis Vuitton, the positioning is the same:

• These stores are as much showrooms as retailers enabling them to operate on a far different profitability scale than a traditional retailer.
• For these manufacturers, the exposure – particularly for luxury brands that want to be associated with other luxury brands – is as important as sales per-square-feet productivity.
• The residual value of a manufacturer being able to show its complete line, rather than an abbreviated assortment at a third-party store, can be critical in establishing the positioning of new and legacy brands alike.
• And most importantly, through these formats they control their distribution and are not as reliant on other retailers who have their own counter-agendas including an increasing use of store brands.

If you don\’t believe this is happening, take a walk through your local \”A\” mall and start counting. That\’s what I did recently at Lenox Square, the huge center in the prestigious Buckhead area of Atlanta. Dismissing restaurants and pure service outlets like shoe and watch repair, the results were eyeopening. Of the approximately 120 retail locations in the mall (not counting anchor department stores), nearly half – 46 percent — were stores that could be classified as wholesaler-direct.

In addition to such above-mentioned brands as Coach, Pandora and Fendi, their ranks included a large number of suppliers who operate their own stores while continuing to sell into department and third-party retailers: Kiehl\’s, Casper, Montblanc, Lacoste, Michael Kors, Addidas, UGG and Tory Burch…not to mention Apple and Microsoft. The second largest group of retailers were names that operate under the brand-as-retailer format, accounting for just over a third of the mall tenants. Easily recognizable names include Abercrombie & Fitch, Express, Ann Taylor and Madewell.

Finally, there were the multi-brand retailers, once the foundation of malls everywhere, but here at Lenox, accounting for just barely 15 percent of the total. These were largely jewelry stores like Tourneau, sporting goods and apparel outlets like Champ Sports and accessory stores like Sunglass Hut. And Lenox is no isolated example. Coach, now part of the Tapestry conglomerate, has some 250 retail stores, not counting its 195 outlet locations. Pandora has more than 320 stores just in the United States. Nike has close to 400 locations in this country.

Understanding this dynamic helps explain why these shopping centers – at least the \”A\” locations — are in fact not doomed at all, but instead are continuing to transform themselves into a very different function in the overall consumption of consumer products. To the average shopper the distinction between wholesaler-direct and brand-as-retailer is pretty subtle…and not particularly important. But to the business of retailing, it is every bit as important as the onset of restaurants and experiential players.

Wholesalers are taking firm control of their own distribution – not just online but in-mall as well — and this represents a fundamental change in American retailing.

Warren Shoulberg, in doing the research for this story at Lenox Mall, ended up in the Food Court after working up quite an appetite.