To locate their stores in popular malls, retailers pay mall operators rent, which usually reflects its sales per square foot. But the companies running the mall also understand that different tenants have different effects on mall traffic, so they vary the rents they demand from various stores. A small, specialty retailer that benefits mainly from spillover customers from other stores might pay up to 15 percent of its sales per square foot. The department stores that anchor malls and draw most of their customers sometimes pay nothing at all.

But all this conventional wisdom is starting to shift due to the simple presence of about 450 Apple Stores worldwide (256 of them in the United States). Because Apple fans are so eager to visit the well-designed, comforting stores, Apple can draw crowds to a mall like no other dedicated retailer has done in the past. Specifically, some estimates suggest that adding an Apple Store increases a mall’s average foot traffic by about 10 percent. On average, each Apple Store earns a sizable $6000 per square foot, and the most popular stores reach as high at $10,000 per square foot.

Noting its value to the mall and the other tenants, Apple has demanded substantial breaks on the rents it pays, such that it refuses to go higher than 2 percent of its sales per square foot. Although these rates are much lower than other dedicated retailers’, they do not quite get the nearly free ride that malls offer to department stores. That is because visitors to Apple Stores often head straight for the technology retailer and its Genius Bar, without stopping to shop with other tenants in the mall. Department stores instead act like feeders to the rest of the mall, so their value overall is greater.

Moreover, the presence of an Apple Store enables mall operators to turn to their other tenants, point to the increased foot traffic, and demand higher rents from them. Although some retailers ask the mall operators to calculate overall mall sales after excluding department stores and Apple, the influence of Apple Stores is undeniable.

Discussion Questions:

1. Are Apple Stores the new mall anchors? Explain your answer.
2. What are the advantages and disadvantages of having an Apple Store in a mall, from mall owners’ perspective? From other retailers’ perspective?

 

Source: Suzanne Kapner, The Wall Street Journal, March 10, 2015