How Malls Make Money: From Traditional Leasing to the Era of AI and Retail Media Networks

Traditional Revenue Models: The Here and Now

Currently, the primary source of income for malls is rental income from retail tenants. The amount a retailer pays for a space depends on factors such as the size of the unit, its location within the mall, and the perceived value of that retailer to the overall mix of tenants.

Malls primarily make money through several streams. Here are some of the main ways:

  1. Rent from Retail Tenants: The primary way that malls earn income is by charging rent to their tenants, the businesses that operate stores in the mall. This rental fee may be fixed, variable based on sales, or a combination of both.
  2. Percentage of Sales: Some mall operators may also charge a percentage of the tenant's sales as part of the lease agreement. This means that the more money the store makes, the more the mall earns.
  3. Advertising and Promotional Revenue: Malls have lots of foot traffic and visibility, making them attractive spaces for advertising. Malls might charge businesses to advertise in common areas or on mall-owned digital signage. They may also earn revenue by hosting promotional events, product launches, or pop-up stores.
  4. Car Parking Fees: Some malls charge for parking, and this can be a significant revenue source, especially in urban areas where parking is at a premium.
  5. Vending Machine Commissions: Malls might have vending machines (like for food and beverages) owned by outside vendors. The mall may earn a commission based on the sales from these machines.
  6. Property Sale and Real Estate Appreciation: If a mall owner decides to sell a mall that has appreciated in value, they can make a profit on the difference between the purchase and sale prices.
  7. Service Fees: Some malls might charge additional fees for services like premium parking, personal shopping assistance, or rental of equipment like wheelchairs or strollers.

Shifting Sands

The retail industry, including malls, has been undergoing significant changes due to various factors, and these are likely to continue into the future. Some of the key trends affecting the future of malls include:

  1. E-commerce: The rapid growth of online shopping has had a profound impact on physical retail spaces, including malls. Consumers now have the convenience of purchasing items from the comfort of their own homes, and e-commerce platforms often provide a wider range of product selections than physical stores. Malls will need to find ways to compete with this, possibly by providing experiences that can't be replicated online.
  2. Experience-Based Retail: With the rise of e-commerce, traditional retail has shifted more towards providing unique experiences that cannot be replicated online. This can include things like experiential stores, food and entertainment options, fitness centers, or other amenities. As this trend continues, malls may start to earn more income from these types of tenants and services.
  3. The COVID-19 Impact: The pandemic led to a surge in online shopping and a decline in foot traffic in malls due to social distancing and lockdown measures. This has accelerated the need for malls to innovate and adapt to changing consumer behavior, such as enhancing their online presence or developing omnichannel strategies.
  4. Diversification of Malls: There is a growing trend towards turning malls into mixed-use spaces, incorporating offices, residential apartments, hotels, schools, etc. This could diversify the sources of income for mall operators.
  5. Sustainability: There is increasing consumer demand for sustainable and ethical practices in the retail industry. Malls that are able to demonstrate environmental responsibility, such as by reducing energy use or waste, may be more appealing to both tenants and shoppers.

In the future, the ways in which malls make money may have to adapt and evolve with these trends.

A New Way Forward

The advent of AI-powered solutions like Footprints AI is set to revolutionize the business model of shopping malls. Footprints AI provides advanced customer analytics and predictive behavior modeling, turning customer behavior data into highly valuable predictive media audiences. This data could be used to inform rental pricing, factoring in things like foot traffic, conversion rates, and even predictive shopping behavior.

  1. Data-Driven Rent Pricing: Imagine setting the value of your retail spaces based on the quality of customer interaction they offer rather than just the square footage. By analyzing footfall, how long customers linger, and the conversion rates, malls could create a win-win pricing model for themselves and their retailers.
  2. Performance-Based Rent Model: Let's go a step further. Footprints AI can track sales data, enabling malls to implement a performance-based rental model. Retailers would pay a base rent, but also a percentage of their sales. So, as the retailer grows, so does the mall's revenue. It's teamwork at its finest.
  3. Value-Added Services and Retail Media Networks: Here's where things get really interesting. Armed with the rich data from Footprints AI, malls can venture into retail media services. This means malls can help retailers advertise their products to the right audience at the right time, driving foot traffic and boosting sales. The mall could set up its own retail media network, creating an additional revenue stream from advertising.

This could spark a complete shift in the mall-retail relationship. Malls become more than just landlords; they become strategic partners, invested in their tenants' success and profiting from the added value they bring.

Footprints AI: Changing the Game with Data & AI

Footprints AI can bring a transformative change to the way shopping malls generate revenue. Here's how:

  1. Data Monetization: Footprints AI enables malls to transform their behavioral data into valuable insights, making data an asset that can be monetized. This includes predictive models of customer behavior that brands can use to target their advertising more effectively, thus opening a new stream of revenue for the malls as brands pay for access to these predictive audiences.
  2. Retail Media Platform: Malls can create or improve their own Retail Media Network offering using Footprints AI, which is designed to optimize advertising campaigns based on predicted in-store shopping behaviors. This way, malls can increase their ad revenues by providing retail brands with highly efficient and targeted advertising solutions.
  3. Enhanced Tenant Relations: The insights provided by Footprints AI can help malls better understand the performance of their tenants and offer them valuable information to boost their efficiency. This could lead to stronger tenant relations and potentially higher rents or lease renewals.
  4. Improved Customer Experience: By using the predictive models, malls can improve the overall customer experience, which can result in increased footfall and sales. For example, knowing the predicted flow of customers could help organize events or sales during high traffic periods. A better customer experience can lead to higher spending within the mall, benefiting both tenants and the mall itself.
  5. New Partnership Opportunities: The insights generated by Footprints AI can be used to attract media partnerships and sponsorships. This could open up entirely new streams of revenue that malls have not been able to tap into previously.
  6. Increased Efficiency and Lower Costs: With Footprints AI's comprehensive retail analytics, malls can optimize their operations and reduce costs. This includes everything from energy use (knowing when areas of the mall will be least busy) to security (understanding customer movement patterns).

In essence, Footprints AI has the potential to transform shopping malls from mere brick-and-mortar spaces into data-driven, omnichannel retail ecosystems that monetize their insights, providing a more profitable, efficient, and customer-centric experience.

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