Institutional investors in shopping malls appear unfazed by the potential of interactive home shopping.
Malls offer a social and entertainment function that can't be matched by sitting in front of a television manipulating a hand-held controller to select products, claim shopping center proponents.
With the amount of pension money invested in retail, pension funds have a lot to lose if interactive home shopping catches on.
Retail properties make up almost 30% of the Russell-NCREIF Property Index, the largest component. Pension funds own 276 malls worth a collective $6.9 billion, according to the index.
The missteps of Time Warner Inc. and its delayed interactive television experiment - it finally made its debut in December - offers proof that it will be a long time before interactive shopping can offer a challenge to malls, if at all, according to shopping center advocates.
But some futurists claim mall investors are not paying enough attention to the new technology's potential.
Traditional store retailers on that front line of the potential assault already are hedging their bets. Several have joined with cable, telephone companies and on-line services to start experiments around the country to deliver goods consumers will order through their televisions or home computers, although none is as sophisticated or as ambitious as Time Warner's experiment.
Supporters of interactive home shopping claim technology will one day give consumers the ability to examine apparel with a certainty that will rival a store visit.
That could pose a threat to the franchise of regional and super-regional malls, which make up 51% of the pension fund assets in retail, according to the Russell-NCREIF index. Some 41 regional and super-regional malls are in the index, representing $6.3 billion of pension fund money invested in retail.
The $27 billion Ohio State Teachers' Retirement System, Columbus, commissioned a study of interactive home shopping and determined its impact would be minimal. Ohio Teachers has a $200 million portfolio of super-regional and regional malls that it owns directly.
Interactive shopping is just one of many factors combining to alter the retail business, said Stanley Eichelbaum, president of Marketing Developments Inc., Cincinnati, which conducted the study for the fund.
"Our measurements today question whether there will be any substantial impact in the short term beyond what we've felt to date," said Mr. Eichelbaum.
John Imboden, director of real estate assets with Ohio Teachers, declined to discuss the specifics of the study because he considered its conclusions proprietary.
If interactive home shopping does become popular enough to affect mall values, it is believed its initial impact will affect those shopping centers that sell commodity-type items.
"The big boxes could be hurt more than the malls," said Debra Brett, research associate with Schroder Real Associates, New York. The big boxes, also known as category killers, are stores that dominate their retail segments. Examples of these are: Toys 'R Us, Bed Bath & Beyond and Barnes & Noble Bookstore. They are often a part of a power center that typically contains three or more anchors accounting for 70% t0 90% of gross leaseable space.
Pension fund ownership of power centers isn't believed to be significant.
Food - part of the largest consumer expenditure category - is another item that might be bought via interactive shopping, and many grocery stores are part of community and neighborhood shopping centers.
"Neighborhood centers are going to be badly affected," said Nina Gruen, principal sociologist with Gruen Gruen + Associates, a San Francisco retail strategist.
According to the Russell-NCREIF data, neighborhood and community centers comprise almost 83% (229) of the total number of shopping centers in the Russell-NCREIF index. The two property types comprise a total market value of about $3.4 billion (49%) of the total value of retail properties in the index.
Community shopping centers are defined as centers with 100,000 to 350,000 square feet with two or more anchors; supermarkets occasionally are one of the anchors. Neighborhood centers have 30,000 to 150,000 square feet and one or more anchors; supermarkets often anchor these centers.
But Anthony Downs, a frequent lecturer on trends affecting real estate, isn't worried, at least for the near future. "The mere fact that something is technologically possible doesn't necessarily mean we'll do it instantly," said Mr. Downs, senior fellow with The Brookings Institution, Washington, and a director of General Growth Properties, a shopping center real estate investment trust.
"In the 1930s, the Buck Rogers comic strip said everyone would be flying with rocket belts by 2000," he said. "Of course we aren't doing that."
Electronic shopping, combined with catalogs, will slow the growth of retail sales in malls, said Mr. Downs. But it won't make the malls an "endangered species."
Counters Ms. Gruen: "People are underestimating the impact (of interactive home shopping) rather significantly.
"Between now and 2000 you will see massive impact."
"A lot of people took a look at the Home Shopping Network (years ago) and said 'I won't do business like that,'" noted Susanne Cannon, a professor in the department of finance at DePaul University, Chicago. Last year, the Home Shopping Network generated net sales of more than $1 billion.
One impediment to interactive home shopping immediately snatching market share from shopping centers - besides the fact it isn't commercially available - is the cost of implementing the system. According to Daryl Mangan, executive vice president in charge of the retail management group with Equitable Real Estate Investment Management Inc., the cost of implementing the necessary infrastructure is estimated between $50 billion and $100 billion.
Distribution and delivery of the items ordered is another obstacle, noted Ms. Cannon.
Apparel - the second largest consumption expenditure after food, tobacco and household supplies - provides the biggest challenge to sell through the interactive superhighway.
Besides the initial consumer reluctance that accompanies new technologies and the cost, people enjoy shopping, claim the proponents of shopping malls.
"A percentage of shopping is spontaneity, and that is stimulated by price and being able to see touch and feel," said Mr. Mangan. "You can't touch and feel on television."
To successfully defend their franchises against the encroachment of interactive home shopping, mall owners will need to expand their centers into entertainment destinations, an endeavor that will be expensive and put pressure on investment returns.
According to Schroder's Ms. Brett and Managing Director Leanne Lachman, these activities include attracting specialty retailers like film studio stores owned by The Disney Co. and Warner Brothers; multiscreen movie theaters; amusement parks; virtual reality spaces; and indoor golf simulators.
But these attractions "get old-hat quickly," said Ms. Gruen. Other mall owners will copy the innovations, thus shortening its life cycle, she said.
The potential impact of interactive home shopping is perhaps best measured by the sales generated by catalogs and the two major home-shopping networks, QVC and the Home Shopping Network.
Catalogs and the two major television shopping channels have steadily accounted for a greater percentage of non-automobile retail sales.
Catalog sales have grown to $53.4 billion in 1993 from $39.8 billion in 1988. The projection in 1994 is $57.4 billion and in 1995, $61.2 billion, according to Donna Krampf, a spokeswoman for the Direct Marketing Association, New York.
Net sales at the Home Shopping Network, Clearwater, Fla., grew to $1.046 billion in 1993 from $730 million in 1988. At the QVC Network Inc., West Chester, Pa., net sales grew from $112.3 million in 1988 to $1.2 billion at the end of 1993.
In 1988, retail sales in catalogs and the television shopping networks were 6.3% of sales generated by shopping centers. Last year, non-store retailing was 6.8% of the total retail sales generated in shopping centers.
"As people get busier with their lives, they depend more and more on the convenience of catalogs," said Ms. Krampf. Catalogs have improved their customer service, and many offer second-day air delivery as part of their service.
"It's ever more reliable and the products are of a higher quality than ever," she said. "It answers a need as people's lives become busier."
The television shopping networks have succeeded primarily by selling jewelry and giftware, according to Ms. Brett of Schroder.
Of the more than $1 billion of sales generated on the Home Shopping Network, jewelry accounted for 49%, according to demographic information supplied by the company.
The goods that are expected to sell easily to consumers sitting at home are "stuff sold at Sam's Club, cases of pasta, office supplies, (items in which) you know exactly what you want," said Ms. Brett.
Depending on one's position on the viability of interactive shopping, time is either on the side of mall owners and operators or time is running out.
"Every new (media) venture introduced has taken 20 years to reach its mature level," said Paul Donato, senior vice president-media for Audits & Surveys, a New York market research firm.
Motion pictures were introduced in 1900, but it wasn't until 1920 that it became a popular medium, he said. Radio was introduced in the 1920s, but it didn't peak until around 1935 through 1940. "Television was introduced in 1946; it reached its peak in the late 1960s."
The generally accepted year of inception for the information superhighway is 1984, and its peak of popularity is expected to occur in 2024, he said.
