JUST a short hike from the malls that made Valley girls famous, Richard Rosenblatt plots the undermining of their world. President of iMALL, the nation's largest independent Internet shopping mall, Mr. Rosenblatt imagines a time when the shoppers' world of concrete and steel slowly buckles under the pressure of millions of keystrokes on computer keyboards.
"This is like a retail Yellow Pages on steroids," says Mr. Rosenblatt, referring to iMALL. "You want a computer store? We don't give you access to one, but to 10."
Although still in its infancy, Internet commerce is beginning to reshape the world of retailing much as the railroads and high finance conspired to bring department stores to the nation's small-business-dominated downtowns.
By early next century, it will start to pose a formidable challenge to city planners, who may suddenly find themselves with huge blocks of retail space made redundant by the growth of on-line businesses.
As Internet use has grown -- from an estimated 9 million in 1995 to about 50 million -- its use as a commercial platform has skyrocketed correspondingly, from $600 million in 1996 to more than $2 billion last year. Most studies project electronic shopping revenues to hit as high as $35 billion in 2000.
Not surprisingly, entrepreneurs like Mr. Rosenblatt see in all this the potential to become the electronic successors of such retailing giants as New York department-store pioneer Alexander Stewart, Dallas' Stanley Marcus and Arkansas' Sam Walton. Building from his initial business of helping stores get online, Mr. Rosenblatt has signed up more than 1,600 merchants for his iMALL. The site had more than 2 million visitors in January, a 58 percent jump from the previous month. Online month-to-month sales rose by 25 percent; year to date, they are up 200 percent.
Like most Internet commerce companies, iMALL lost money last year; more ballyhooed companies such as Amazon.Com and New York-based N2K lost even more money, though both say they will begin to show profits around the year 2000.
Americans are increasingly dissatisfied with their current shopping environment. According to surveys by Deloitte & Touche, about half of them consider shopping "an unpleasant chore." More alarming for conventional retailers, that number climbed to 55 percent among respondents under age 35. Another recent study, done by the International Council of Shopping Centers, found that 60 percent of consumers complained that their activities conflicted with store hours.
In their rush toward discounting, conventional retailers unwittingly opened the door to Internet-based competitors. "If I am going to shop and get poor service and a bad experience," says Deloitte's Tony Cherback, "I increasingly can get better information and service on the computer."
Today, adds Mr. Cherback, shoppers are eager to find ways to buy goods with less hassle, faster turnaround and lower prices. The result is a boomlet in both home-shopping and catalog sales. Alternative shopping outlets -- telephone, home TV shopping, catalog and online -- now account for 15 percent to 20 percent of all general retailing. Within 15 years, led by the expansion of online retailing, that percentage could grow to 55 percent. Even more unsettling news for the conventional retailer is that the home-based shopper tends to be wealthier, better educated and includes many older women, formerly the mainstay of the mall-based department store.
Shop around the clock
TTC Online retailing enjoys many intrinsic advantages over conventional store shopping. For one, it is not confined to workers' hours or labor regulations. It offers instantaneous transactions and the constant ability to change offerings or prices with greater ease than phone-, TV- or catalog-based media. Finally, and perhaps most importantly, it has the potential to provide consumers with far more in terms of selection because it costs so little to "print" extra pages.
To be sure, Internet commerce still represents barely a drop in the bucket in the nation's aggregate retail sales; Wal-Mart's annual sales alone are far higher. Furthermore, selling some goods, like clothes and shoes, may not be easily adaptable to the Net, though some Web sports sites report brisk business in T-shirts with professional team logos.
As the biggest and most successful retail chains, including Home Depot, Office-Max, Barnes & Noble, Toys R Us and Wal-Mart, get into the Web act, the consequences for conventional retailing will be felt. Possible victims include some of the roughly 19 million people who, in 1994, worked in retail -- down by more than 400,000 this decade.
But the most conspicuous losers in the emerging retail universe could be shopping-center investors, retail chains and their shareholders. San Francisco real estate analyst Mark Borsuk believes Internet commerce could produce "third wave tsoris" (the Yiddish word for grief) in the existing retail environment. "We are talking, within a decade, of a structural transition in how retailers do business," says Mr. Borsuk. "They are going to have to greatly change their assessment of their space needs. The distribution model is going to change because the Internet makes it possible for a producer to sell to an individual at their home."
Too many stores
More ominously, the Internet-commerce takeoff is occurring when most real estate experts believe the country is "overstored" and, amazingly, getting more so, with retail space up more than 20 percent since 1990. According to a study by the Chicago-based Real Estate Research Corp., between 10 percent and 15 percent of all regional malls will have to be abandoned or redeveloped in the near future. By one estimate, the growth of at-home shopping could free up roughly 110 million square feet of retail space, or the loss of more than 100 regional malls. Mr. Borsuk and other analysts say property owners should find ways to transform their underused shopping sites into education centers, flea markets, microbreweries or government office space.
Yet, analysts believe that conventional retailing will survive if it focuses on aspects of the shopping experience -- social, entertainment, cultural -- unavailable on the Web. "There's got to be a return to retail showmanship," says Karen Demarest Cosaro, co-president of Simon Brand Ventures, an Indianapolis-based mall designer.
But attempts to create Disneyland-like environments are turning some of the nation's premier shopping districts -- midtown Manhattan, Union Square in San Francisco and Beverly Hills' Rodeo Drive -- into near-clones of each other. To thrive in the next century, retailers may have to return to offering a combination of old-fashioned personal service and unusual goods in shopper-friendly environments.
Joel Kotkin, a senior fellow at the Pepperdine Institute for Public Policy, wrote this for the Los Angeles Times.
Pub Date: 5/07/98