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Shopping Centers Today -> November 1999
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Site development
Web-based retailers may turn to brick-and-mortar
By Kevin Kenyon
Gateway's multichannel approach marries the Web, brick-and-mortar and phone sales. |
The growth of e-commerce has given birth to two opposing assumptions: that the shopping center will eventually prevail over the upstart, or it will be replaced by the Internet.
But instead of an either/or scenario, isn't it possible that the same competitive forces that are driving mall-based retailers into cyberspace could push e-tailers into malls?
It also begs a number of other questions.
Is the shopping center industry looking at the Internet the wrong way? Instead of competition, will the Internet provide opportunities for new tenants, as e-commerce retailers turn to brick-and-mortar?
Gateway is perhaps the best example of a retailer already using a multichannel approach to its advantage. The San Diego-based computer giant started in 1985 in the direct-order phone business, migrated to the online arena, and now is aggressively opening stores.
The retailer opened its first two physical locations under the name Gateway Country in 1996, and now has 185 locations, with plans to open another 100 next year.
Having a physical presence gives retailers like Gateway certain competitive advantages that Internet players (also known as pure plays) can't match, such as the option to allow customers to return merchandise to stores, said John Mlynski, president of Gateway Country Stores, based in North Sioux City, S.D.
"It's a competitive world, and as companies search for new avenues or existing channels to reach their customers, you have to look at expanding your points of distribution," he said. "One of the great ways to do that is face-to-face contact, and the store is still the best place for that."
Depending on whom you talk to, Gateway's multichannel approach is either the start of a trend or the exception to the rule.
If the former is true, it could also be a matter of history repeating itself. There are certainly similarities, at least at this point, between the evolution of both catalogs and e-commerce.
It's easy to forget that such shopping center mainstays as Sears, Roebuck and Co.; Montgomery Ward; and Talbots each got their start in the catalog format — a distribution channel that at one time was expected to render malls obsolete.
It was only 15 years ago that many predicted the catalog would be the retail format of the future, due mainly to the ease and convenience it offered time-starved shoppers. But instead of spelling doom for the U.S. retail centers, many catalog retailers ended up populating them.
Now, 15 years later, the shopping center industry is facing a challenge from another distribution channel that touts convenience as its main ally — e-commerce.
But will history repeat itself again? Will the Internet provide a whole new generation of brick-and-mortar tenants, as catalogs did?
Although opinions vary, some industry observers have speculated that Amazon.com, the poster child for everything Internet-related, may begin opening stores in a few years.
Sharon Greenspan, a spokeswoman for Amazon.com, told SCT that those reports are all rumors. "I can't confirm or deny speculative reports about what we may or may not get into in the future."
But just prior to press time in October, Amazon.com announced it would begin selling 500,000 new products through a new initiative called zShops. The site is open to merchants of all sizes, as long as they are willing to pay a small fee. In return, Amazon will have access to huge amounts of information on consumer buying habits.
While no one knows for sure, Michael McCarty, senior vice president and director of market research for Indianapolis-based Simon Property Group, said it may be only a matter of time before Seattle-based Amazon.com begins opening stores of its own.
"Ultimately you have to ask the question, 'why not?'" he said. "They're already involved in real estate in the sense that they're expanding their ownership of distribution centers, even though they started on the premise they would ship directly from their suppliers." (The company has three distribution centers in the United States, with plans to open four more by the end of next year. It also has two already open overseas, one in Germany and one in the United Kingdom.)
Thoughts of direct shipping changed, McCarty noted, after Amazon.com officials realized they needed to have control of their inventory.
"If you're going to have that kind of investment in infrastructure, and you now own the inventory, why wouldn't they open up some Amazon.com clearance centers?" he asked. "They're already in real estate, that was the first step, and it might be a matter of not getting to that part of their growth cycle."
Even if Amazon began opening stores, it could be the exception, not the rule.
McCarty predicts that retailing's future lies in a multichannel approach, citing Generation X teen apparel retailer Delia's, which opened its first full price store earlier this year at The Westchester, a Simon mall in White Plains, N.Y., as a prime example.
"Delia's went from catalogs, to the Internet, to brick-and-mortar stores, so it is already happening to some extent," he said.
Gateway officials, for one, recognized a need for brick-and-mortar stores early on, according Mlynski.
"Gateway's philosophy has always been one of offering options to our customers," he said. "While we were very comfortable with our phone and Web businesses, we knew there were a great majority of clients who still needed to touch and feel the product before making a purchase."
The stores, which average 8,000 square feet, feature a Kids Zone, where children can experiment with Gateway PCs and software, a classroom-style training center, a business solutions center and a service center that allows customers to bring in equipment for upgrades or repairs.
Customers also have the option of ordering over the phone or through the Internet and picking the merchandise up at the stores, according to Mlynski, who said many customers use all of Gateway's distribution channels.
"We've found that over 50% of our clients shop us in more than one channel," he explained. "They may start with the phone and end up at the store, start at the store and end up on the Web, or start at the Web and end up on the phone."
Speculation about e-commerce retailers like Amazon.com opening stores is natural considering their market dominance, according to Ed Lubienicki, a partner with the Los Angeles office of Ernst & Young Kenneth Leventhal.
"One day Amazon.com says they're never going to have something physical, and then the next day someone says they think they will, but no one knows for sure," he said.
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