From the Windoooows to the MALL – Mall of America in the Digital Era
Mall of America has been able to digitally amplify its massive direct and indirect network effects to remain a tour de force of brick and mortar shopping.
In an era where e-commerce seems to be eating the world, and where products can be purchased in seconds and delivered in hours, it’s easy to believe that brick and mortar stores are quickly becoming an endangered species. Yet even as mom-and-pop stores face increased pressure and are forced to close their doors, one breed of physical shopping outlet has remained alive and well: Mega Malls. Among them, Mall of America (MOA) has proven that the use of digital tech can accelerate network effects and make massive in-person retail defensible and lucrative.
Well before the advent of today’s pervasive digital technologies, malls were old school network effect machines. By centralizing and condensing many shopping errands into one location, traditional malls created value for shoppers looking to kill several birds with one stone. In addition to shopping convenience, malls also provided customers the chance to see, be seen, and be entertained. (Let’s be honest—we all love seeing what kinds of strange creatures come out of the woodwork at the mall).
As the number of shoppers increases, it becomes increasingly attractive for new stores to open, seeking to capture some of the unplanned and splurge purchases precipitated by greater foot traffic. More stores in turn make it more appealing for shoppers to come to the mall, and the virtuous cycle continues. The malls themselves capitalize on these direct network effects (people drawn to people), and indirect effects (people drawn to stores and stores drawn to people) by charging rent and a percentage of revenues from their tenant stores.
The model seems straightforward, but how does this play out in the digital era? Enter Mall of America.
While there are successful malls in nearly every major city, none compares to the behemoth that is MOA. Opened in Bloomington, Minnesota in 1992 (in the space formerly occupied by Minnesota’s foremost professional sports teams), MOA has grown to become the single largest shopping mall in the United States. The massive complex has 400 stores, employs 12,000 people, see between 35 and 45 million visitors each year, and generates $2 billion in annual economic activity. It has an aquarium, water slides, and roller coasters. And plenty of strange creatures.
MOA realized that the core facets of its value creation for customers (convenience, entertainment, socializing) could all be enhanced through the use of technology. In order to deploy new tools to drive engagement, revenues, and its network effects, MOA opened a social media control room. There, staff members use tools such as location-based social listening and personalized email/SMS communications to make their experience sticky and contagious. As people share pictures and engage with one another around the mall, they are rewarded with deals, promotions, and momentary publicity (who doesn’t want to be projected on a huge screen at the mall?).
These same tools amplify the indirect network effects that MOA needs in order to keep rent and shared revenues on the rise. MOA’s social media tech effectively acts as an informational lubricant that keeps people moving around the mall and trying out new deals. Stores are better able to get new customers in the door, and therefore more willing to let MOA capture some of the value created by the shopping experience.
The results have been overwhelmingly positive for MOA, which has seen increases in revenues and traffic, and is beginning a large expansion project even while Amazon snags more and more brick and mortar business. The question remains whether or not this model can be replicated elsewhere, and whether MOA will ever grow so big that it exhausts demand. What is clear is that people no longer have a narrow shopping list of items that they are hoping to buy at the mall (if they had one, they could just order online without a second thought). But there are some experiences that you just can’t get online. Network effects made malls a staple of global capitalism, and they will determine which malls thrive and which ones perish in the digital era as well.
Won’t not, I think it’s interesting how MoA is using the indirect network effects that it created in the offline world to benefit it’s long term sustainability in the online world. However, I have doubts on whether their location based strategy is enough to get people in the door. While it may encourage shoppers to loiter in front of a screen for a few additional minutes, what added value is it creating? Are the promotions and deals useful, or simply paid ads for companies in the mall? Are they being used? Do customers convert?
Traditional network effects absolutely make sense for malls, but the way you’ve described MOA, I begin to wonder whether e-commerce really is their biggest threat. I confess I don’t know Minneapolis very well, but could it be that there simply isn’t another indoor space (important for cold climates!) for people to socialize? Would this job be fulfilled in other cities by outdoor spaces (e.g. parks in SF), or other amusement destinations (e.g. movie theaters). If that is the case, I would be less worried about Amazon cannibalizing sales or offering retail coupons, and more interested in continuing to attract the latest revenue-generating attractions that can’t be replicated online.