Decoding the Digital Economy

Economists David Evans and Richard Schmalensee decrypt the market dynamics of platforms like Alibaba and Facebook

Published 5 years ago on Oct 07, 2017 3 minutes Read

The design of the Aventura Mall is a very conscious one. The mix of anchor stores and the inclusion of the AMC theater are intended to attract different groups of people. The fact that the mall has a Bloomingdale’s and Nordstrom also signals that it is a high-end mall. Each of the anchor stores likely draws a significant number of shoppers that the other stores wouldn’t attract. The combination of these stores is meant to increase the number of shoppers who come to the mall mainly to shop at one of those anchors. The mall directory lists Aventura’s non-anchor stores in twenty-two different categories. Some categories, such as card and gifts, have only one store, while others have many.

Consumers have a significant range of choices for shopping, although the stores are skewed more toward high-end places. This mall has both a Tiffany & Co. and a Cartier. It describes itself as a “Luxury Shopping Destination” on its website. A Google summary says that it is “an upscale super-regional shopping mall.” The reviews describe it as a “chic” mall with “high-end shops.” It attracts crowds of shoppers. 

The selection of anchor and smaller stores provides a signal to shoppers. Shoppers know to go to this mall for upscale shopping. “Definitely not the type of mall where you come if you’re trying to find some bargains,” according to one visitor. On the other side, since upscale retailers know that Aventura Mall has foot traffic with the kind of people who would likely buy from them, many luxury brands have stores there. The result is that both stores and shoppers are likely to find good matches.

The physical design of the mall and the locations of its stores determine how people walk through it and what stores they encounter. The map in figure 8-1 shows that the mall isn’t designed to minimize the amount of time people take to walk between stores. A consumer who wants to compare sweaters at Bloomingdale’s and at Nordstrom has the longest walk. The perimeter walkway on the second level, around the atrium, eliminates the possibility of choosing the shortest distance as the crow flies.

The Aventura Mall is designed to encourage people who want to shop at multiple stores to walk a lot. “Take your walking shoes,” noted one visitor, “you will need them.” Encouraging foot traffic means more people pass by each store and increases the odds that a consumer will come in and buy something. Stores benefit from this; shoppers don’t. Some malls go even further by putting the up and the down escalators on opposite ends of the mall.

Store locations in the mall seem to follow some logical patterns. Stores that tend to attract similar types of shoppers are clumped together. The corridor leading to the Nordstrom stores is lined with luxury stores like Cole Haan, while the corridor leading to JCPenney has more down-market stores like The Gap. Tiffany and Cartier are located opposite each other. There is no corridor leading to Sears and few significant brands are nearby, reflecting the fact that it isn’t a feeder of significant traffic to the luxury stores.

By locating similar stores close together, they attract more traffic — what is known as an agglomeration effect — while also increasing competition between them. These location decisions were likely made in concert with the stores, particularly the anchor stores, which have considerable bargaining power. Presumably, the agglomeration effects outweighed the competition effects for Tiffany and Cartier.

The Aventura Mall impresses visitors as a “beautiful and classy place.” That doesn’t happen by accident either. Mall operators have to make sure that stores do their part to keep up appearances and provide good service, because that affects everyone. They also have to make sure that people behave themselves. To make their platforms nice places for their participants they need to have and enforce rules and, as we see next, most do just that.

This is an extract from David Evans and Richard Schmalensee's Matchmakers published by Harper Business Review Press