Monday, September 13, 2010

How Arendi can be successful and unique

In Syracuse, New York, a controversy is raging. It involves the 1990 mall, Carousel Center, a man, and an empty building. Basically, a developer named Robert Congel came up with a plan to build an enclosed tourist resort called "Destiny USA"


Shopping Mall Museum puts it well.
In 1997, a massive expansion of CAROUSEL CENTER was made public. Originally known as the Empire Project, and eventually as DestiNY USA, it would encompass nearly 5 million square feet and redevelop several acres of oil refinery storage tanks and rust belt industrial installations southeast of the existing mall.

CAROUSEL CENTER, itself, would be doubled in size, becoming the nation's largest shopping center and bumping Minnesota's MALL OF AMERICA down to the number 2 position.

In addition to retail, DestiNY USA would include a 90,000 square foot salt water aquarium, 500,000 square foot multi-field indoor sports and recreation complex, a glass-enclosed Winter Garden with Erie Canal replica, 15,000 seat amphitheater, 100 acre domed park, 20,000 hotel rooms, three golf courses, a performing arts center and many other amenities.

A photo op-type groundbreaking was held in October 2002, which commemorated the start of construction on the first phase of DestiNY USA; the 1,300 room Grand Destiny Hotel. The hotel was scrapped after it was revealed that the city would not extend tax breaks for a hospitality-oriented expansion. The addition would have to be strictly retail.

The DestiNY USA project hit other snags. Controversy erupted over all of the tax breaks given to Pyramid Companies. Doubts also arose about claims made concerning its potential impact as a major Upstate New York tourist draw.


Finally, in March 2007, a real groundbreaking was done. Phase One, Arendi, was underway. The retail expansion was said to be a "convention defying retail experience that redefines customer service" (Pyramid Cos., the developer, is big on secrets). However, the economy slipped downhill during that time, and no tenants were announced. Instead of completing by 2009 or 2010, the bank stopped giving loans and the construction was halted in June 2009, leaving it as a empty but sealed shell attached to a bustling shopping mall. Pyramid eventually released more details on it, as seen on these, articles. Let's examine them, and find some details.

Walk into any shopping mall in America and you'll see a common area down the middle with stores, divided by walls, on both sides.
Now imagine a mall without walls and maybe without traditional stores at all. Instead, shoppers walk around huge, open floors with brand-name products sold by their makers directly to the public. Electronic tags attached to every item for sale and inside shoppers club cards carried by customers allow the mall to precisely track consumer shopping habits, right down to what items they pick up, which ones they put back, which ones they buy -- and in what order.


From this, it starts sounding like a really gimmicky direct-outlet mall, which might just work, but then, we hit a snag.

Brand makers receive access to all of the data and insights about consumers collected by the mall. But in exchange, they must give all of their profits to the mall.
That's the unusual -- and untested -- retail concept that developer Robert Congel planned for the first phase of Destiny USA before the financial rug was pulled out from under his mall expansion in May in a dispute with his construction lender.


And now you see the problem. No one, especially in the bad economy, wants to throw all profit into a concept that might provide them feedback data.


One source familiar with Congel's plans said the goal was to create a setting in which stores could collect the same valuable consumer data that Internet retailers such as Amazon.com gather every time they make a sale.


You know, Amazon.com collects its own profit...


Dinesh Gauri, assistant professor of marketing at Syracuse University's Whitman School of Management, called the developer's plans "pretty ambitious" but said he was skeptical of the business model.
"Sharing a hundred percent of your profit with the mall owner?" he said. "I don't think it sounds reasonable at all."

He's right!


To be successful, Destiny would have to persuade shoppers that Arendi would benefit them, he said. If consumers are being asked to give up a degree of privacy as they shop, they are going to want something in return, such as lower prices, he said.
"If I am paying the same price as I would be paying at a Macy's to get a pair of Dockers, I'm not going to go there," he said. "But if they say, as an additional incentive, the pricing here will be a little cheaper, then I will be more inclined to visit there."
Destiny also would need to get retailers to overcome their natural reluctance to share consumer data gathered in their stores with potential competitors, Gauri said.
"Privacy is one of their biggest concerns," he said. "Sharing things with competitors is probably the last thing they will ever do in their lifetimes."


Error #2: Would you be willing to give up extensive information about yourself for a $10 off coupon? Anyone? Anyone?
It gets worse, too...

"One of the worst things for retailers is to run out of a product that is in demand," he said.
Customers would have to register at an Arendi Web site, providing their name and e-mail address. If they'd like, they could also provide personal information such as age, clothing sizes and preferred fabrics.
In return, they would be given customer ID tags, plastic cards about the size of credit cards. They would carry the cards with them when they go shopping at Arendi, just as they carry shoppers club cards to grocery stores.


Finally, we move up to the more redeeming properties....

Destiny partner Bruce Kenan said the model combines the convenience of Internet shopping -- the instant availability of detailed product information and comparisons from multiple manufacturers and user reviews -- with the ability to touch, smell and try a product.
"This is a marriage of Internet and physical retail," said Kenan. "People are going to like it. They're going to demand it."


And since the selling space in Arendi would not have floor-to-ceiling walls, store build-out costs would presumably be less than they would be in traditional mall designs. One source said Arendi would look more like a giant exhibit hall than a mall.


The whole thing is reminiscent to the Epicenter Collection I covered a while back in my blogs (the link links to articles, and another series of articles I wrote). Except Epicenter Collection didn't make a desperate grab at profits in exchange for "market data". For Arendi to work, here's what I envision.

After passing the center namesake carousel, what was an entrance has colorful signage welcoming me to Arendi. I pass through. The floor becomes nice hardwood, and an exposition center of the hottest brands seems to appear. In a way, it was along the feel of MacWorld, Comic-Con, and E3...and those were just the tech brands. I picked a directory to Arendi at the information desk (I declined the card), and decided to visit the ThinkGeek booth.

A "Classic Video Table Tennis Kit" is on display. The fully built model is impressive, but I can't pick one off of the shelf. I decided to grab a tablet and write the product number down, IKEA-style. Card users could immediately swipe the bar code. I go to the counter of ThinkGeek and order it. Luckily, it's in stock and they can bring it out so I can pay with a credit card. If it wasn't, it would be shippedCash and checks aren't accepted in Arendi, only the Arendi card and credit cards.

Next, I go to the Arendi food court. The Arendi food court thankfully isn't like an exposition center in terms of prices. It's a mixture of traditional mall food court stands and some regional USA-themed ones Pyramid developed. The Texas barbecue restaurant looked rather convincing...and tasty, but I passed it up in favor of an Orange Julius (I wasn't that hungry for a full meal).

After finishing, I explored a bit further. Being myGofer (Kmart's "catalog showroom") and a Hot Wheels store, I found an "alley" of stores that mostly local stores selling a mixture of used and new goods. Being that some of the booths were very small, I'm guessing this is how this is how to respond to eBay. Some of it I noticed look liked regular people owned it, but some were corporate-like small businesses. Digital Palace I recognized...they used to operate out of a store in the now-closed Rolling Acres Mall. It also reminded me a bit of the back alleys of Japan's Akihabara district, even though I had never been to it.

I ended up buying some old Mac software I intended to upload to Macintosh Garden, as the publishers had died years before. Just then, I get a call on my cell phone, requesting we need Windex and maybe a gallon of milk. The myGofer has everything I need. It, in essence, is almost like a Kmart Super Center like there used to be in Waco, Texas, except it is arranged like a catalog showroom. With the pick-up format, it's far less exciting, but I get the Windex and the milk successfully and quickly. I ended up winding my way back to Lord & Taylor, which I used as a short-cut to return to my car in the main Carousel Center. It certainly was an experience.


Despite how nice and cool Arendi is in this world, it isn't enough to be a full tourist attraction, possibly on the basis it's full retail. There are very nice upscale and sought-after brands occupying relatively large places in Arendi, but it's a struggle against a place like New York City, where brands mingle with one-of-a-kind restaurants and experiences. But it is cheaper.

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