A fresh view on malls business model

Article written by Didier Gasté – CEO @Transaction Connect

In May 2019, at the end of a 5-month acceleration program in San Francisco, I introduced for the first time Transaction Connect outside Europe at the Yodlee Demo Day.

I was overexcited… and overwhelmed at the same time! 

Why was that?

Most of the people in the room were experts (Investors / Banks / Startups) of the Fintech sector in the strict sense of the word: i.e. used to startups offering innovative solutions for the financial world (Robot Advisors / Personal Finance Management Apps / Payments / Cryptocurrencies) and less familiar with the sector we work for: Retail.  

Because if our product is indeed built on payment data, it is aimed at Retail players in general, and at the time, mainly at shopping malls. The pitch is short (5mn), and my challenge is therefore to capture the audience’s attention right out of the gate by trying to break down all the prejudices they may have about the retail sector in general, and shopping malls in particular. 

My idea is to draw a parallel between shopping malls and their online counterparts, the marketplaces, to show how their value proposition is close to that of platform economies.

In my pitch, after reminding that if online commerce is growing, it still represents less than 20% of the total revenue generated by retail worldwide (half of which is captured by marketplaces), I point out that shopping malls and marketplaces are platforms where supply and demand meet. 

The traditional value proposition of shopping centers is twofold:

  • (B2C) What is the value proposition for the consumer?

To provide in a single environment the whole shopping and entertainment offer, allowing them to answer their needs and desires.

  • (B2B) What is the value proposition for the retailer?

Offer commercial premises in high-traffic areas, which should enable the brands to generate strong sales and ultimately enable the landlord to collect high rents.  The key indicator for the industry is, therefore the effort rate or Occupancy Cost Ratio (OCR), which is a percentage of the turnover that it would be acceptable to charge for the service provided: rent and charges.

OCR = ( Renty+ Charges) / Salesy

This effort rate varies from one shopping center to another and varies within the same shopping center depending on the brand’s activity.

For online marketplaces such as Alibaba, Rakuten, Amazon or Cdiscount, the value proposition is almost identical:

  • (B2C) What is the value proposition for the consumer?

To provide on a single website the whole shopping and entertainment offer to meet your needs and desires.

  • (B2B) What is the value proposition for the retailer?

Offer inserts to promote their product by taking advantage of the high traffic on the site, which should allow the brands to generate strong sales and ultimately allow the lessor to collect high rents.  The seller and the buyer agree on the percentage of the turnover that it would be acceptable to charge for the service provided: commissions.

In both cases, it is therefore a question of monetizing a large audience of consumers with brands by trying to generate the maximum turnover from them. The higher the turnover generated by the brands, the higher the platform’s income (rent or commissions) will be.

For each lever, the malls and marketplaces have their advantages and disadvantages.

📉 Frequency of visit:

The immediate accessibility, at any time and from anywhere of the online marketplace, the shopping center responds by the physical proximity, sometimes lucky enough to be on the daily route of millions of customers ensuring its natural visibility.  

Marketplaces and malls use the same word to designate the result of these 2 levers: traffic or visits.

Visitsn = Customers* Frequencyn

This simplifies the formula to:

Sales = Visits* Conversion* Basket

Traffic is the sinews of war. We talk about natural traffic vs. paid traffic to distinguish the visits that will have required an advertising investment or not. 

The location is in a way the natural referencing of the offline world if you please 😁. Except that changing the route of a highway, moving a subway station, or changing the direction of traffic on a street, hard to disagree, is very unlikely and when it happens, a lot more anticipated, than being knocked down X positions on the Google result page.

💳 The conversion rate: is the percentage of customers who will make a purchase during a visit.

With the exception of shopping malls located on a thoroughfare and therefore crossed without necessarily issuing a purchase, the average conversion rate of shopping malls is very high, with very few customers visiting the place without making a purchase (we have conducted studies on the subject for Transaction Connect malls). Whereas conversion rates for online commerce are much lower, because the browsing process is less engaging than physical visits, and therefore rarely corresponds to a need to buy.  

🛒 The average shopping cart: is the average amount spent by a customer during a visit. 

Based on these 2 indicators, where the online marketplace is able to act at each step of the customer’s navigation to incite the purchase and push additional sales, the shopping center has long considered (due to the lack of available technology?) that its role stops at bringing the consumer into the center, without helping the brand for the final conversion and the average basket.

Alan Waysbort
Head of Marketing