Welcome to the mall of 2039: It's nothing like today

Welcome to the mall of 2039: It's nothing like today

Illustration by George Kavallines for CNBC

Forget the fluorescent-lit indoor mall that's been synonymous with shopping for years. The future of retail will look starkly different 25 years out.

Full-body scanners that take your measurements, and recommend the clothes that best fit your body. Seamless checkouts that can be done from inside the dressing room or on your mobile phone, eliminating the need to wait in line.

Innovations like these are already threatening to become mainstream. And, as consumers shift a larger chunk of their spending toward the Web—where they're offered a seemingly endless pipeline of products—experts say bricks-and-mortar locations need to undergo a complete makeover to stay relevant in future decades.

That means a different tenant mix, smaller selling floors, and technologies and experiences that give shoppers a reason to leave their couches and hit the aisles.

"Retail has to evolve on a regular basis or it faces extinction. It's just the way it is," said Dan Hurwitz, CEO of open-air shopping center owner DDR. "While the challenges may be different, the need to evolve … is just as important today as it's ever been, if not more so."

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The significant shift that lies ahead for the industry is already underway. As ubiquitous mall tenants from Sears to RadioShack shutter stores and consumers shop more online, experts agree there will likely be fewer malls by 2039.

The size of individual stores is also a question mark, though experts say selling space will mostly shrink. That's because improved shipping capabilities will lessen the need to keep multiple versions of the same item stocked on the floor.

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One company at the forefront of this thinking is Seattle-based Hointer, which licenses its technology to retailers and operates its own apparel store. Its eponymous store keeps only one version of each item on the selling floor, and shoppers use a smartphone app to scan the tags attached to the pieces they want to try on. The items are then dispensed into a dressing room.

If shoppers want to buy something, they can scan their digital shopping cart, stored on the app, at a kiosk to check out; if not, they can send the products back to the stockroom by placing them in a chute.

"The belief that every size, style and color should be cash and carry seems to be changing, and also allowing retailers to trim their store layouts and their inventories," said Byron Carlock, PwC's U.S. real estate practice leader.

Hointer's innovation also highlights another shift within stores—the decreasing need to take up space with cash registers. Giovanni DeMeo, vice president of global marketing and analytics at Interactions Marketing, said evidence of this transition is already present at stores such as Apple, where associates carry around a tablet and check customers out from within the store.

Hointer's Seattle store showcases one version of each item on the selling floor, eliminating the need for cluttered racks that shelve multiple sizes.
Hointer | Facebook
Hointer's Seattle store showcases one version of each item on the selling floor, eliminating the need for cluttered racks that shelve multiple sizes.

The 'fantastic, big store'

But there could be other uses for the freed up space. DDR's Hurwitz said he hasn't seen retailers requesting smaller square footage for their stores, because they need the stockroom space to quickly fulfill online orders and remain competitive. They are effectively turning stores into miniature distribution centers.

But Bryan Gildenberg, chief knowledge officer at Kantar Retail, said this will likely be a temporary trend, because as retailers' leases expire, they'll be able to snatch up smaller spaces in a more cost-effective manner.

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That said, there will be room for the "fantastic, big store," said Mike Moriarty, a partner in the retail practice of A.T. Kearney. He pointed to "best-in-class" retailers such as Macy's and Barneys, saying their ability to connect with consumers across both the digital and physical space, as well as deliver a large, well-curated assortment, will build brand loyalty.

Retailers whose merchandise doubles as entertainment, such as Cabela's, also have more flexibility in operating large stores, Gildenberg said.

"All of a sudden the idea of being a big, lumbering department store isn't a problem anymore," Moriarty said.

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Others argue that large stores, such as anchor tenants or big boxes such as Wal-Mart, could cut back on expenses by shrinking their store sizes and instead invest in true distribution centers, which are typically located in remote areas and therefore cost less.

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Ultimately, there's no one-size-fits-all solution for retailers, who will need to gauge consumer expectations for their particular product, said Virginia Morris, vice president of consumer insights and strategy at Daymon Worldwide.

"I think it really depends on the need for the shop itself and … whether or not that product has to be there today or if it's OK if it comes within 24 hours," she said.

Regardless of their size, retailers need to be more flexible with their store formats in the future, said Alison Paul, vice chairman and U.S. retail and distribution leader at Deloitte. She said pop-up shops taught companies that they don't always need to invest capital into stores. Instead, they can do things such as open seasonal shops where the population migrates (think the Hamptons in the summer) or peddle merchandise at concerts or large events.

"I think what you're going to see is a lot more experimentation with formats," Paul said.

A mall for all seasons

To that point, Kearney's Moriarty said the future of shopping will hinge on time rather than space. He envisions a shopping center where 20 percent of the tenants will constantly be changing, giving consumers a sense of urgency to head to the mall.

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Companies that cater to this idea are already starting to sprout. Story, a Manhattan retail location, changes its store design and product mix every four to eight weeks, allowing small brands to experiment with brick and mortar. Taking a different spin on the same concept is Storefront, a website that connects retailers with space to rent.

Kantar's Gildenberg said there will also be a fusing of residential, commercial, retail and entertainment space 25 years down the road—a trend that is slowly emerging. He predicts that as Americans live longer, small co-operative food stores will open in retirement communities, and will be staffed by the people who live there.

"As the nature of malls becomes less retail and more multipurpose, I think all of this stuff is going to end up [coming] together," he said.

As stores close and developers try to ramp up the convenience offered by their properties, the tenant mix at the shopping center of 2039 will look significantly different than it does today.

PwC's Carlock said he expects to see everything from restaurants and grocery stores to spas and body sculpting classes inside the mall of the future, as consumers look to consolidate their trips to save time. It's a shift that is already starting to happen.

"I think we're so time-constrained that people are mixing self-care in with their shopping routine," Carlock said. "Every minute counts."

Deloitte's Paul predicts malls will also include more service-oriented types of retailing—including those that don't carry much inventory and traditionally wouldn't open a store, such as a store selling security systems to consumers. The storefront would be a way of "broadcasting their brand."

"There's definitely a synergy between a storefront and an online presence," she said, adding that Deloitte research has found brands' online sales are typically higher where they have a physical store.

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To make those bricks-and-mortar shops more interesting, experts envision a high-tech future that wows shoppers with fun technologies they want to play with and makes shopping easier.

One of these ideas is the concept of the endless aisle, where customers shop at a kiosk and can purchase items that are no longer in-stock or aren't sold in stores. Bruce Molloy, vice president of global business development at Customer Mobile, predicted this technology will go one step further in 25 years, becoming what he's dubbed the "wall mall."

Through this technology, Molloy said, retailers could use a single wall to showcase all of their inventory inside stores, to target customers looking for a particular item in a different color, or outside their doors, to draw shoppers in. They could even set up an entire storefront with just one wall.

"This is the new window shopping," he said.

Retailers are also experimenting with the idea of virtual stores, where by walking and moving their smartphones, shoppers can browse virtual aisles and add items to their cart by touching the screen.

Through this technology, Chinese online grocery store Yihaodian in 2012 opened 1,000 virtual stores in one day, which consumers could "enter" via the store's app when they stood in a tagged area. Yihaodian saw its revenue increase 17 percent over a three-month period after the campaign was launched, a spokeswoman said.

Tesco, which is experimenting with ways for consumers to use Google Glass to scan barcodes on in-home grocery products and add them to their virtual shopping carts, is also looking at ways to innovate the in-store experience. The grocer has tested virtual supermarkets where, by using their smartphones to scan QR codes on picture displays, shoppers instantly add the items to their online carts.

Tesco's virtual grocery store in the Gatwick Airport is an example of how the physical and digital worlds are expected to be fused together in 25 years.
Tesco's virtual grocery store in the Gatwick Airport is an example of how the physical and digital worlds are expected to be fused together in 25 years.

For traditional grocery stores, Accenture has created a prototype app that, when held in front of a certain product, gives shoppers additional information that specifically pertains to them—such as whether it contains ingredients that would cause them to have an allergic reaction. In a more easily executed innovation, Motorola has created a personal shopping device where shoppers can scan their items as they pick them up off the shelves, significantly reducing checkout time.

"You bypass the entire point-of-sale system," said Tom Bianculli, Motorola Solutions' senior director of emerging business.

Outside of the grocery industry, new technologies at apparel, beauty and home improvement stores are fusing augmented reality with the physical world. Retailers from Macy's to Uniqlo have experimented with "magic mirror" technologies, which allow shoppers to select items on a tablet and try them on virtually. They can also take snapshots of themselves wearing various outfits, which they can share with friends on social media.

Beauty retailer Sephora is also experimenting with a virtual reality mirror, which enables shoppers to test different eyeshadows and lipsticks without applying them to their skin.

Lowe's is testing augmented reality via a virtual reality room that lets shoppers view a 3-D representation of their renovations before they start on the projects.

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And Bloomingdale's has incorporated Me-ality body scanners into some of its stores, which Daymon's Morris equated to "the TSA repurposed for the ultimate shopping experience." Through this technology, shoppers enter a round chamber, known as the Size-Matching Station, where a circling wand collects more than 200,000 reference points from their bodies. They are then given a personalized list of recommended apparel brands and sizes.

"The idea of endless aisle, the virtual augmenting the physical, if you're not providing those kind of table stakes ... I think you're going to be really hard-pressed to compete in any effective way," Bianculli said.

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Right now, many of these technologies are in limited or experimental use, but expect them to become more commonplace.

Wearable technology is also expected to play a big role in 25 years. Through this innovation shoppers could, for example, use their eyewear to scan an item's barcode and add it to their shopping cart.

Changing the 'last mile'

Experts also predict 3-D printing will radically change consumer behavior. An Intel report predicted that over time, shoppers will develop an expectation for retailers to "print on demand" individualized products just for them.

"This whole concept of off the rack and hypercustomization becomes something much more mainstream," Bianculli said.

Along those lines, Kathryn Howe, senior advisor, retail industry at Cisco, predicts the last mile of manufacturing will be brought into stores. This means retailers will be able to add a layer of personalization to their products, similar to how Nike allows shoppers to customize their own shoes. Not only does this create a more fun in-store experience for consumers, but it helps them build a relationship and trust with that brand, Howe said.

Kantar's Gildenberg said he expects this concept will cross over into the children's market, with toy stores evolving into workshops where kids build their own toys—a more advanced take on Build-A-Bear Workshop.

But not all future technologies will be all about the "wow" factor. Retailers are also researching ways to make shopping more seamless, including the use of beacon technology. By placing sensors around stores, shoppers who opt in will be able to receive additional information about items that they walk past or pick up, as well as targeted promotions based on where they are in the store.

Retailers will even be able to track the movement of a phone to determine what type of shopper it belongs to and deliver better offers for them, said Joe Jensen, general manager of Intel Retail Solutions. For example, someone who spends hours browsing at the mall would be targeted differently than someone who enters knowing exactly what he or she wants.

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But the technology won't stop there, said Interactions' DeMeo. He envisions a future where consumers walk into a coffee shop, and their smartphones already know their order. With the simple touch of a button, they could then place the same order, or choose something entirely different. Eventually, they'll be able to pay for their order straight from their mobile device, eliminating the cash register, he said.

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Experts said mobile phones will also have the capability to sync with store databases, enabling associates to already know what items shoppers are interested in as they cross the threshold. Gucci is working with software platform provider MicroStrategy on a mobile app that, when shoppers ask for help on their smartphone, sends the associate select information, such as a wish list.

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Intel's Jensen said the key to these offerings is making them transparent to shoppers, and giving them a way to opt out. Otherwise retailers risk creeping out consumers and losing their trust.

"[I have a] strong view about personal privacy but also, selfishly, I don't want to invest in a technology that consumers think is creepy because in the end it won't succeed," he said.

Although privacy will certainly be an issue, experts say millennials will help drive the adoption of these somewhat invasive technologies. That's because they're digital natives who are more comfortable sharing their information with retailers than their parents.

"With each passing year they have more purchasing power and more influence," said Scott Bauer, a partner with PwC's retail and consumer division. "They understand how the technology works and because they experience other brands in other sectors they know it should be offered. With every year those expectations only go up."

An altered retail landscape

Shopping centers and malls were originally invented for logistical purposes. But because consumers no longer need these physical structures to conveniently purchase goods, only the strongest will survive.

Deloitte's Paul said so-called A malls, which see high sales per square foot and house the most in-demand brands, will morph, but will continue to remain relevant with consumers.

Second-tier B malls, on the other hand, will need to reconfigure themselves to adjust to slower traffic by shrinking their selling space and growing their stockroom space as they assist in product distribution. But C malls, Paul said, are in "real danger" of being repurposed for other uses, or fading away altogether.

"I think 25 years from now you're going to see a very different composition from what commercial real estate looks like [today]," she said.

DDR's Hurwitz said "there's no question" in his mind that there will be fewer malls. That's not only because some centers will close, since it doesn't make sense to invest capital into a money-losing property, but also because fewer properties are being built. According to the commercial real estate services company CBRE, 2014 will see the lowest amount of new U.S. retail construction in in the past decade.

The thriving shopping areas 25 years from now will focus on a unique experience that can't be duplicated online. This can either be done through innovative technologies or by offering the unexpected.

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"No longer is it enough to have a collection of stores," said Daymon's Morris. "You have to have a community experience that's a draw for your target audience to come."

A few overseas markets are ahead of the curve in bringing both shopping and novelty to consumers. In Japan, for example, the Aeon Mall complex at Makuhari New City caters to pet lovers with a two-story mall dedicated to their furry friends, including a pet hotel and a pet store. In New Zealand, an entire shopping center was built out of shipping containers.

Other overseas malls that are seamlessly integrating the idea of commerce and entertainment are The Beach in Dubai, which combines shopping, the sea and an outdoor cinema. The Siam Paragon Mall in Thailand includes language schools, a cooking school and an aquarium.

And a new project in Dubai plans to expand on the country's already extravagant retail properties by building the world's largest mall. Called Mall of the World, it's expected to take up 8 million square feet and house the world's largest indoor theme park, wedding halls and a wellness district that offers one-day surgeries.

A rendering of the Mall of the World in Dubai, which will be the largest mall on earth.
Dubai Holdings | YouTube
A rendering of the Mall of the World in Dubai, which will be the largest mall on earth.

Domestically, Rick Caruso, CEO of real estate firm Caruso Affiliated, said he strives to build a sense of community on his properties by including activities such as Mommy and Me classes. This encourages consumers to not only visit the property, but also help it become an important part of their everyday lives.

Retailers are also taking things into their own hands, and this trend should continue. To pull consumers into their stores, J.Crew has offered customers free manicures, Urban Outfitters' new Manhattan store includes a hair salon, and Tommy Bahama has incorporated restaurants into a number of its stores.

"The one thing we have to keep in mind is that the best merchant wins," said DDR's Hurwitz. "Bad merchants will not be bailed out by the Internet or bricks and mortar, and great merchants will take advantage of both."

—By CNBC's Krystina Gustafson

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