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Deep Dive

Deep Dive: Epic Games Buys a Mall

Epic Games buying a 980,000 sq. ft. mall kicks off a deep dive into the Future of Malls. And, Rob and Peter argue about regulations. 

SHOW NOTES

TikTok Marketing Crash Course

TRANSCRIPT

Peter:

Welcome to unpacking the digital shelf, where we explore brand manufacturing in the digital age.

Peter:

Hey everyone! Peter Crosby coming to you from the Cape Cod studios of the digital shelf Institute. Rob's on from the Berkshires. Hey, Rob. Hello there. So do you know, 2021 is going to probably be a year of a lot of things. Uh, but we saw an article from the real deal, a real estate news site that highlighted a clue that 2021 will be the year of the repurposed mall. Uh, here's the lead Epic games, the video game giant best known for making fortnight said this week, it's buying a mall in North Carolina for reported $95 million. They're buying the 980,000 square foot Carry Towne center for 95 million. And they plan to open their new headquarters there in 2024. It will be about four times as large as the company's headquarters. So one this massive headquarter highlights the surging tide of gaming as new media and potentially, and I think already we're seeing, uh, uh, an opportunity for brands, but stick a pin in that. We'll definitely cover that another time, but what does this portend for the future of malls in 2021? And Rob, you brought this to my attention. What, what hits your brain when you read this article?

Rob:

First of all, the Epic games co folks are the way that they think about everything is innovative. They're thinkers from first principles. And this is just another example of that. You think about what you need for an ideal corporate headquarters. If you've got a big company, you need a lot of square footage, you need really good parking. And then also you want to be accessible to where a lot of people live. And the malls that are across this country are typically just off the interstate where I went to high school in Southern Connecticut, the Trumble mall was you get on the merit and you get off, you get off the exit. And literally it's the next right here in Trumbull mall. It's now, now it's a Westfield mall and most malls are like that. Most malls have this characteristic where you are off of major highways.

Rob:

So from a, from a corporate headquarters perspective, this is a pretty cool move. You get a lot of square footage in particular, if it's four times as big as their current headquarters, it means that they can probably do cool fun things like the, like the cool tech companies do. Maybe there's climbing walls, maybe there's a big gym, you know, they can do that type of stuff with crazy amounts of square footage, big parking lot. So it's easy to park and then it's super accessible. I mean, it's just, it's a, it's kind of a smart way to think about how to repurpose malls from a first principles perspective on what, what mall real estate offers. So I mean, hats off to them for coming up with that idea. Now, now I kind of live a mall for my headquarters

Peter:

Someday, someday

Rob:

I'll have $95 million in my back pocket, but soon,

Peter:

Well, you know, I mean, we've covered, we've, we've talked about sort of what's going on with retail and, and mall space, you know, just going vacant and, and anchor stores going down. We aren't going to w we're really looking today. What this allows us to do is focus on sort of what can happen in 2021 and beyond, you know, you know, the headlines about it. We're over retailed, um, 26 square feet of retail for every person in the U S compared with two and a half square feet in Europe, the anchor stores are going down and there's another sort of round of them, um, at sort of the middleweights, they call them particularly in apparel. There's 12,500 stores that together the 17 sort of middleweight stores account for, it's not a ton of revenue, but it's a lot of stores. And so there's going to be an impact there.

Peter:

And of course, ultimately the consumer 38% of respondents said they plan to shop at malls left less often this year than they had in the past. Um, the experts are saying that over the next few years, as as many as 300 of the roughly 1800 regional and super regional malls, those with over 400,000 square feet of space will be either shut down or converted. So kind of accept that as the state of things, but I I've, I, you know, as we were talking about this, um, about the opportunity ahead for those spaces, there's kind of, there's some interesting, um, variations that we can think about.

Rob:

Yeah. And, and I, I love the observation that the Epic games folks had, which is a lot of square foot, great connected interior space, a lot of parking on major highways, think about thinking about those things. And then if you look at the glut of additional square footage that they're saying is likely to come on the market, that means that the price per square foot is only going to only get to go down from here for others who want to follow suit. So, so what do you do with those core characteristics? One that we've all been seeing is the fulfillment centers. I mean, these are good characteristics for fulfillment center, right? Something that's on major highways that has a ton of square footage, um, and so forth. Another one, which I haven't seen myself, the news on this, you know, you had the news is the apartment complexes and community centers, which I, which I kind of love because it's almost giving, giving them all back to the people on some level. Um, what would you want to, do you want to read your news?

Peter:

Well, yeah, I mean, there's a couple of examples I found, but the one that I have here is in Tyson's corner, in, in Virginia, uh, you know, where they turn them into apartment complexes and community centers, and actually thought of that in Epic games. Cause not every area will have a company of Epic game sort of growth path where they can take over the whole thing. But when I even think of Plaza in Boston, Copley Plaza is a complex where there's tons of stores, it's a luxury Simon mall, but there's also office space in it. And, um, and it's connected up to restaurants and a hotel and a convention center like so traffic, retail traffic is automatically drawn into that mall because there's probably tens of thousands of people at any one time kind of converging into that space. Same thing with apartment complexes and community centers. It becomes a village then that village can have maybe different kinds of retail, but we'll have retail. Um, but the, the key with both that the logistics centers and as well, you know, the, another option is public housing and homeless centers Macy's store in DC was, um, turned into a shelter in 2018. You know, all of those things come with sort of public difficulties of zoning and not in my backyard and all that stuff. So they're not easy solutions, but they are longer, longer term solutions.

Rob:

They're attractive ones though in, I mean, you, you and I were both living in South Boston and uh, near South Boston there's, um, an outdoor shopping area called South Bay, which has, it has a home Depot. It has a Marshall's, it has, it has an office Depot. And it's just, it's just got like large, big box stores that giant parking lot and people from all over Boston go there. There's a huge target there. Um, they built a large apartment complexes around the shopping center. And one of the attractions there is that you can just go to the stop and shop. You can just go to the target, you can walk across the street, do your shopping, walk back to your apartment complex. And then it's also on the public transit. So you can go downtown and it enables a car-less walk centered living by having the, the housing and the shopping right next to each other.

Rob:

So if they can figure out mixed use futures for these malls where they, where they have, yeah. Turn it into a car, apartment complex, but also have other things in the complex. That's really cool. I mean, before the pandemic, I was living in downtown Boston and I was renting an apartment above a hotel. And so what are, what are the amenities that I used? I used the restaurant that was in the hotel. I used the gym that was in the hotel. I use, I use all the things that were part of the same complex and it was really great. It was really, really convenient

Peter:

College. I lived in a dorm that was connected up to the cafeteria. My mail was downstairs, et cetera. I used to call it the habit trail. Like you, you didn't have to leave. You could just, my little hamster self we'd go down, feed myself, get my mail, talk to people, go back up to my room. So

Rob:

The other thing that's so great about this Epic games headquarters, you look at the classic, uh, U S large company headquarters. Um, I started my career at IBM and IBM, all the new hires would go to their, their headquarters at ARMAC in New York. And it was, it was, it was a large sprawling campus with a lot of separate buildings. And I went up there in the winter and, uh, had to dress up in winter gear to go anywhere, you know, from where I was staying to where the gym was, to where the meetings were, even between the meetings you go to like 3m campus, for example, I've been to a whole bunch, uh, similarly in Minneapolis, there's a lot of buildings on that campus. They're all spread out. Some of them you actually have to drive between they're so far away from each other. It's like on the same campus, you compare that to if your whole headquarters is in one giant 400,000 square foot mall, that's air conditioned.

Peter:

Oh my God, there's gotta to be a squad of golf cards. Uh, that would be a blast.

Rob:

Are those like airport golf cart thing, totally running around. That's even more jealous,

Peter:

The little like, um, police light on it. And when you back up, it makes those horrible beeps, uh, it's going to be, it'd be a nightmare of joy. Um, just to finish the list of possibilities, um, health clinics, uh, in San Francisco, uh, they're redeveloping the Galleria to incorporate a healthcare provider, adding a whole foods, expanding a target. So, you know, making these, you know, bringing the community in and then, Oh, by the way, while you're here, do some shopping. And then as we know the trend towards, uh, people in this recession buying off price, shopping off price, retail stores are, are really becoming the, the new anchors. Um, you know, they, um, the sales at reopen stores were actually higher at the off-price shopping during the same period last year, not surprisingly for TJ Maxx Marshall's and home goods, um, in the, in last year's first quarter.

Peter:

So, uh, so those are kind of the, Hey there's, here's some options. They have some, some obstacles in terms of zoning and things like that. But I think, uh, if people want their communities to survive, they're going to have to sort of have public private partnerships to make these things work. But for our next segment, I really want to talk about what if we just wanted malls to be malls? What if we actually want retail to happen at them? Like, what are the possibilities for that in 2021? And so I saw an article that had a Microsoft's, uh, it was in charged retail by Ben Stevens. He spoke to a product manager at Microsoft in the retail side, and there's no surprises here. Elizabeth lay bowler said, organizations must embed unique and amazing engaging experiences that excite shoppers, um, aligned with the online and digital brand and customer experience for a seamless customer journey. You know, not, you know, no surprises there. It's, it's the word side, we hear a lot true, but still word salad. But the interesting thing that I thought was that they called out that to really instill technology in the shopping experience. There were a couple of things that are needed to sort of make that possible. They're saying 5g will enable a greater uptake of digital touchpoints in store. So I want to get your reaction to that. I can see you're skeptical.

Rob:

Yeah. Can I help the podcast? Listeners can feel me rolling by eyes, hard as possible from wherever

Peter:

Blockchains involved,

Rob:

Blockchains, 5g, AI, what else, what else can we throw on this pile right now?

Peter:

It did say it. And this one, I get digital payments, uh, convenient, mobile checkout scan, and go, you know, there's no, I, I wanted to get through those just as a way of saying, uh, you know,

Rob:

I blacked out even the topic that we're talking about seriously though. I mean, I think I don't, I don't think that there's a way to make malls just be retail. I mean, there's so many statistics that show that the us is over retailed in terms of square feet compared to anywhere else in the world, by just an absolutely crazy margin. People have been talking about the correction for a long time and, uh, I don't have the corrections already been happening over the last decade, right? So we've, we've turned a lot of the stores in malls into restaurants and some of the big boxes that have closed down they've turned into LA fitness and so on and so forth. So malls have already been doing this slow con conversion from just a food court and a lot of stores into yes, a food court in stores, but also restaurants and also gyms and also other things.

Rob:

And that, to me, feels like a more healthy future. If you want to keep malls where, where retail plays a part or even a significant part of the mall, you just have to make them more destinations for various things. So, you know, sure. Add, add the health clinic, just the same way that Walmart and others are adding, uh, frontline care and preventative medicine into Walmart locations. You know, Walmart, the Walmart Supercenter is just absolutely enormous, right? You could do that with them all. So you add doctor's offices, you add dental offices, you add hair salons, you add, you know, you do all those types of things. And then the mall itself becomes more of a place that you go in general. And there, it just happens to have a bunch of retail as well. That, to me feels more sustainable. I think the malls were already going in that direction. I think it's just a matter of whether financially the mall owners that are out there, the Simons and Westfields and whatnot, um, can make the transition faster than they have to shut some of these things down.

Peter:

Yeah. One of the, one of the articles that I read, um, that was pointed to, by any commerce writer named Webb Smith, he pointed to, uh, a sub stack article by Elena Berger. Who's an investment analyst at Gilbert Gagnan and how in company, which made me think of the car, you know, car talk, their law firm was always Dewey Cheatem and Howe. So anytime I see a law firm without it, it makes me laugh. But aside from that, Elena actually wrote a really cool thought piece, kind, raising more questions answered about the death of physical retail. The subtitle was the death of physical retail has been greatly exaggerated, but it was cool because, you know, we spend so much time thinking about the growth of digital and how, uh, incredible it's been in the last period. But, um, she was saying, you know, if, if your memory of the past year was erased and I told you that a pandemic would rip across the world, rendering us all loyal supplicants to online shopping, what percent of sales would you assume e-commerce would be of overall consumption? She said, she posed that to family and friends and everyone guests 50 to 80%. The reality that it's a little over 14% of sales is actually shocking. The takeaway shouldn't be e-commerce is eating the world. It should be despite lockdown store closures, massive layoffs in global logistic networks that rival militaries in terms of sophistication e-commerce was less than one sixth of sales in the U S I just found it, uh, you know, I found it a healthy sort of change in perspective. Distortive start rethinking about this, but how does that hit you?

Rob:

Um, I mean, I think it's not super surprising to me cause I'm really close to the data. The thing that it really illustrates, which is a lesson that I guess people need to be taught over and over and over again, is that old habits die hard and change is difficult and you don't just simply change the way that people like to behave and, and, and all that overnight. It's just one of those things it's. So this, this is, this is, this is just the same sort of thing. Some people, especially people that have been going to a store and get getting into their car and they've got their routine and they drive to the store and they like putzing around in the store and they've been doing it for 30 years. They're going to keep doing that because that's what they know. And that's what they like.

Rob:

And I don't know, I don't know to what extent that you've ever been frustrated by purchasing groceries or purchasing anything online, but it's more complicated. And I, you know, I look at, you know, my parents or my wife's parents and the way that they interact with technology and the way that they shop online and what confuses them and where they get stressed out. And it's not a seamless experience experience for them. It's not super easy. It's not like they just are simply adopting these systems. And God, I can't believe I ever drove to the store. It's confusing things happen, and they're not really sure where to click to, to fix and, and like that's life. Right. So I, of course, on some level there's huge sections of the economy you're not going to go to e-commerce immediately. Um, and so, yeah, but she doesn't, I mean, look, there was a huge jump in e-commerce this year and, and within certain segments, like if you take, you know, highly educated millennials who live in cities, it's got it's. I mean, you're looking, you're looking at that 80% number. Right. And so, um, demographic by demographic, it's going to be different. Um, old habits die hard. And, and, and I think that's, that's, what's represented in there and,

Peter:

And beyond sort of, yeah, online's not great. It made me think about, particularly as we hopefully emerge from this, um, quarantine period at some point that, you know, if you think of the, sort of the levels of the brain, uh, safety, I must survive the gratification. Uh, you know, I want positive feedback and then belonging actually shopping together kind of hits, um, the two parts of that brain, like gratification and blinding, like the sense of people, love shopping. People also love community. Most people love community. And that's what shopping physically for a lot of people represents it. It is, it has been the gathering place for community, either with your group of friends or your family, or, um, or just your community at large, you know, the, you were talking about it, you'd, you'd go and you drive to your mall and that's where like, you'd hang out and you go to the movies and, and, uh, so I feel like that's the core kind of need that people will still want fulfilled. And so then the question is what do you do to draw them back in, uh, what creates that new experience? And that's what I think is, is the excitement of what's coming up.

Rob:

Yeah. W I mean, we shall see, I mean, it's, uh, I, I'm not as dismissive as that as the author of that article, that you're pointing out, which, which we'll link to in the notes. I think that there are a lot of people, you know, wealthy, educated, urban folks, which represent a huge amount of buying power that are just not going back. I it's just like a, you know, for me, I don't have cable television, but I have Netflix and I had Disney plus, and I, and I spend money on Amazon prime video. And so I've, I've got a lot of, I spend money on media all over the place. I probably spend more than a cable subscription almost certainly, but it's spread out. It's spread out across these direct to consumer OTC services. I'm not going back to cable, I'm not doing it. It's awful.

Rob:

And, and same thing with e-commerce like I used to hang out at the mall because, you know, there weren't better options in 1994 than to hang out at the mall in suburban America. And there's way better options. You play fortnight. Fortnight's awesome. Video games are awesome, like video games in 94, weren't as awesome. And so it, and you could do video games now hanging out with your friends, you put on your headset and you're on video and you're playing video games. And so the video games are the social way to get together and kill time in 2021. It's not going to the malls. So I think that younger people, you know, you, the further you go down that demographic profile and the, for the, the, the less, that, that community thing is that physical in-person community thing in a mall that, that at once was, I mean, it's like that, that movie mall rats, right?

Rob:

Remember that movie moment morons can't make that movie today. You couldn't make that movie before the pandemic. People don't relate to it as much as they used to. There's a generational shift that's happening, where it's just, I think it's just simple demographics that are being represented here. And so, so yeah, people want community, but I don't think that shopping in person is the way that it's going to happen on a go forward basis. Let's just go to next time, next time, post pandemic, go to a grocery store and look around. People are not talking to each other. They're on their phone the whole time. Yeah.

Peter:

I agree with Greg with grocery shopping. I do wonder if, um, if there's a different experience to be had, you know, you think of, of where Shopify has gone. I, for example, Shopify, uh, Elena, Elena burger pointed out that Shopify has hired a spaces lead, which could signal a move to give some of their small merchants, a storefront, and her car, her call to action in the inner piece was, you know, that retail needs to be something slightly different. She says, call it brand populism, call it making retail space as idiosyncratic surprising and weird as the 3:00 AM discoveries. You find in an Instagram wormhole, like she's saying, there are hundreds of thousands of shops that exist only online. What if you could wander those brands in reality? And is, is there a, you know, is there a, a conversion of some of these, um, you know, really loyal brands that pop up that that could make a vibe a more vibrant space?

Rob:

I don't know. I'm skeptical. I mean, so on some level, yes. If you've got a great online brand, you at some point to get volume and everything, you have to go offline. Somehow we saw Bonobos do it with the guide shops on tuck. It's done it, Casper's done it. Allbirds has done it away, has done it. And as retail, uh, real estate becomes cheaper. It's open to more and more brands to do in store experiencial, uh, retail again, right. Glossier does a great job here. There's a lot of examples that we can come up with, like these, then there's a whole bunch of other experiences which are more discovery oriented. Like you're saying the surprise and delights for the things I went to show fields. I saw the Shopify set in show fields where there's just a bunch of Shopify hosted products like physical in show fields.

Rob:

I've been to the Amazon four-star stores. They're random experiences you walk around in there and you're like, what the heck am I doing here? I don't think, what am I supposed to be looking for? What's in it. It's just, it's weird. They're weird. And there's not really like a reason to go there. Um, and so I don't know. I, I look at, I look at those and I think, I don't know. So yeah, sure. If you, if you've had a successful brand build online, it'll be cheaper for you to open an in a store if for a physical experience than it ever has been. You know, the rest of that. I don't know, man, I haven't, I haven't seen a, uh, let's bring a bunch of brands together in a store experience work so far.

Peter:

I'll um, it will, I mean, obviously during 2021, because a lot of this is going to continue to shift this year, um, with, uh, the continued closings and the recession kind of working its way through kind of leave us with this and this, this stack kind of jumped out at me because I, uh, you know, we talked earlier about public private partnership. This was pre pandemic, but in 2019, the New York controller's office issued a study on the rise of empty retail space in the city. While the study found that Amazon drove vacant square footage higher by roughly 1% from the period of 2007 to 2017, the far more powerful driver of retail vacancy were actually delayed government permits.

Peter:

A 1% increase, um, in permits are unapproved after 30 days, um, led to a 3.2800000000000002% increase in vacant retail square footage. So I would just leave all of us with this note that, you know, when you think of the, the roadblocks put in the way of, of repurposing this malls where you feel like, um, retailers, small businesses are not able to move as quickly or as easily as they'd like, there's a call to a Clarion call to action. Uh, for some, some, uh, some changes there to make this recovery happen and to re-energize retail, that's just mice.

Rob:

Yeah. Well, look, I'm, I'm as big a fan of throwing mud at Glint government regulation. That's unnecessary as anybody you'll find, but, uh, there's also an element of this, which is the regulations haven't changed much in the last decade. So it's, it's an unsatisfying, it's an unsatisfying bogyman, right? Like if that's the reason, then why wasn't it the same problem 10 years ago or 15 years ago. So

Peter:

The world has changed. And so, I mean, look at the pace of it.

Rob:

Well, the world has changed, but the regulations haven't, it's not like every municipality of the thousand municipalities across the U S have all materially changed their zoning laws or their permit filing processes or any of the things that local businesses have to do in the last 10 years. They just like, you're talking, there's been a minority of those. Right.

Peter:

But I think the important part of your last sentence before this one was the world has changed. So yeah, the regulations have been the same, the adjustment that now needs to happen is that in order for this, for particularly based on this study and others, and we just, you just know it instinctively, if it, if you make it hard on a small business owner to get their place, get it up and going change the space. And it's just too hard to do in a time where capital is restricted. And, uh, and, uh, and if you make it that hard, just things won't re bloom. It's just that simple. Totally agree. Yeah. That's right here. Here. It lets you regulate.

Peter:

All right. So things must change. And speaking of change, uh, the kids tell me that this Tik TOK thing is really taking hold. So that's why I snag Evan Horowitz, CEO, and co-founder of movers and shakers. They are the creators of the most viral campaign in tech. Talk us history to join the digital shelf Institute for a webinar on January 27th at 1:00 PM Eastern, to give you a crash course into Tik TOK marketing for brands, it's going to be really cool to the signups for this webinar have been beyond almost anything needs to has done this year. So there's intense interest in seeing what's going on there and it should be entertaining. Also, the, the stuff that they've done is really super creative and connecting, Raghav, Oh! Raghav Nathan is our new production assistant by the way, he has joined the pod. Um, so you'll hear it mentioned every once in a while, he'll put the link into the show notes and, and maybe I'll do one of my tech talk viral dance means I'm kidding. Yes, yes. Rob was waiting for that. No one else is. So, uh, in the meantime, hopefully see you there and thanks as always for being part of.