The global retail shakeout continues, and shopping malls in the US are not immune to this trend. Ryan Strategic Advisory research analyst Sean Goforth assesses the impact of contact center occupancy in these once powerful shopping behemoths.
The mall rats of the ‘90s may not have grown up, but they have moved on. In their wake, the cleaning crews of America’s shopping centers have had to confront an altogether more pesky challenge than wads of chewed gum: actual rodents. As one retailer after another has closed, occupancy rates have plummeted at hundreds of malls across the nation, leaving janitorial staff in a battle royale against rats threatening to infest the sprawling commercial spaces. Of the roughly 1,100 malls in operation two years ago, Credit Suisse forecasts that roughly 25% will be closed by 2022.
Fundamentally, the death of U.S. malls attests to the changing retail environment. Twentieth century mainstay department stores have been shunted aside by online retailers. Consumers get better products, cheaper, and delivered right to their door. Secondary drivers are also at play. Among those who do still go out to buy things, many prefer to patronize discount stores and outlets, thus hastening the retail mall’s demise.
Outsourcers have turned this into an opportunity. About five years ago, third-party contact center providers began taking out leases on large spaces previously occupied by anchor stores in Class B and C malls. Convergys (now Concentrix) moved into Eastgate Town Center in Chattanooga. Several months later Sutherland Global Services inked a lease at Shepherd Mall in Oklahoma City.
Before long, Conduent had set up shop in Sears’ old space in West Oaks, a mall outside of Orlando. And soon after that, Bed, Bath & Beyond located a captive center in the West Oaks’ space formerly occupied by Belks’ department store. Fully staffed, the two contact centers at West Oaks employ roughly 1,000 people, according to the Wall Street Journal.
Saving the Mall?
Such couplings beg the question: Can contact centers save the American mall?
No. The reason for this is two-fold.
First, most of the early moves into mall space were to provision basic call center or back-office services. In select cases, the outsourcer received local tax incentives, which may be drying up, even as lease rates stabilize. Today, many low-traffic malls are owned by private equity groups and in some cases municipalities, who purchased them at fire sale prices 5-8 years’ ago. Attracting contact centers was an early strategy to get rental income over a large space.
Now though, these unconventional owners have developed strategies that package their malls as mixed-use spaces where fulfillment centers can speed delivery of online orders, doctor’s offices can operate alongside medical labs, and even short-term tenants like costume shops for Halloween can locate. Given the influx of nontraditional tenants, rental rates have already bottomed in many areas. If rents firm up or incentives disappear, operators will be hard pressed to run a mall-based call center profitably, especially one geared toward provision of low-margin basic services.
Second, the mall leases came at a peculiar time. Public reports indicate that contact centers have taken out leases on mall spaces 14 times in recent years. Six of these leases were announced from January 2017-March 2018. Disparate events facilitated mall leases at this juncture. According to an estimate by Site Selection Group, 2017 saw the opening up of 36-million square feet of retail store space, much of it due to a spate of closures by stores like Sears, Sports Authority, Macy’s and JC Penney. Another glut of empty anchor store space, so well suited to call center operations, is unlikely to become available soon.
Political rhetoric also catalyzed activity in 2017. That year, populist lawmakers began amping up the rhetoric against businesses that offshore. Already underway, re-shoring gained new urgency. Many contact center executives, like many Americans, were unsure just how seriously to take this change in dialogue. Fearing the worst, third-party outsourcers signed a number of leases at US malls.
However, over the course of time executives have come to accept the political bluster will not jeopardize outsourcing operations. Referring to the rhetoric out of Washington, one COO of a major outsourcer told me recently: “We did not know how to respond two years ago. We looked into re-shoring more work; major clients were asking us about it.” Then, he deadpanned: “Now we still listen—to the clients.”
Stopping by the Mall on the Way Home
Over the last year, three contact center operators have moved into empty mall space. While this is a fair amount of activity, these sites will employ fewer agents, and they appear qualitatively different than before. All three outsourcers are US-based. Two of the mall leases essentially amount to re-investment in the outsourcer’s own backyard. Sitel is expanding its footprint in Tennessee by moving into an outlet mall space in West Knox. Meanwhile, Oregon-based outsourcer FCR opened a call center at Butte Plaza mall, its second site in Montana.
Also this year, WPS Health Solutions opened an operation in a mall that had been purchased years earlier by the town of West Frankfurt, Illinois. It plans to eventually employ up to 225 people. These workers will deal with health care while making $14.50 an hour, on average.
It is this investment that likely points to the future. Increasingly, viable use of US mall space will require contact center operators to provision high-value services. Healthcare services, moreover, are suited to mall-based sites because industry-wide there is a tendency to view such work as tailored toward domestic delivery given concerns over data protection. Indeed, as noted in the 2019 Ryan Strategic Advisory Omnibus Survey, US-based outsourcers ranked data protection concerns as their overall top priority.
Mall-based operations are best seen as a step in accepting this reality. After nearly a decade when agent wages effectively stagnated because of high unemployment, now salaries for line agents consistently start above $10 an hour. Cost dynamics are biting, and this may condition contact center operations in malls to focus on higher-end services. Yet, there is also widespread recognition that re-shoring is an operational imperative, especially when it comes to verticals that deal with sensitive information. Amid these crosscutting realities, mall sites can allow outsourcers to jumpstart re-shoring of more work. In time, as the kinks in regulatory compliance with healthcare and other data-sensitive verticals clarifies, the mall-based agents may find themselves well-situated to be effective home-based agents.
So, a trip to the mall may benefit outsourcers and career-minded call center agents. Even so, it is likely to be a brief stop before they need to set their sights on home.
For questions or comments, please contact Sean Goforth directly – firstname.lastname@example.org.