Would shoppers pay to enter a mall?

Welcome to the experience economy. That was the title of an article in the Harvard Business Review by B Joseph Pine and James Gilmore, founders of Strategic Horizons LLP, a "thinking studio" in Cleveland, Ohio. The two have expanded the theory in a book, The Experience Economy.

At the heart of their thesis is the idea that an experience is a discrete economic offering, separate from services or goods, which can be packaged and sold in much the same way as the other two.

The idea was given an airing last week when an executive of LendLease, the Australia-based property developer, suggested that shopping at the company's Bluewater centre in Kent was just such an experience, and that perhaps the company should charge shoppers for admission instead of charging retailers rent.

A spokeswoman for LendLease was quick to quash speculation, however. "As a company we have no intention of charging admission to Bluewater," she insisted. "It is a sky-high and off-the-wall idea."

For one thing, she said, existing financing agreements contain covenants regarding rental streams which could not be replaced.

Nonetheless, the idea has already taken hold in the minds of the largest retail property company in the US, Simon Properties, which has already incorporated "experience" into several of its largest malls.

"We have used that article and the book to try to explain to people what we are doing," says Ms Karen Corsaro, president of Simon Brand Ventures, a division of the company charged with developing corporate merchandising.

Indeed, Messrs Pine and Gilmore's article returns the compliment by using one Simon mall, The Forum in Las Vegas, as an example of an experience. Designed to recreate an ancient Roman marketplace, The Forum has marble floors, living trees, "outdoor cafes", and a painted blue sky with clouds that periodically simulate thunder and lightning.

Every hour, outside the main entrance, statues of Caesar and other Roman luminaries - one of which, it is said, bears a striking resemblance to the company's chairman, Mr Mel Simon - become animated and speak, and from time to time Roman centurions march through on their way to the adjacent Caesars Palace casino.

The authors illustrate their argument by pointing to the economic progression of the birthday cake. In the agrarian economy, birthday cakes were manufactured at home using farm commodities. As the goods-based industrial economy expanded, production began to rely on pre-packaged ingredients sold by the likes of Betty Crocker. Later, as the service economy took hold, busy parents purchased ready-made cakes from bakeries or retailers such as Marks and Spencer.

NOW, "in the time-starved 1990s, parents neither make the birthday cake nor throw the party," the article notes. Instead, parents outsource the cake and the party to some professional organiser - an entertainment emporium such as Chuck E. Cheese Pizza Time Theatre in the US or Hollywood Bowl in the UK - which is in the business of providing a birthday experience.

"As services, like goods before them, increasingly become commoditised - think of long-distance telephone services sold solely on price - experiences have emerged as the next step in what we call the progression of economic value," the article says.

The merchandising challenge for leading-edge companies of any type, the authors predict, will be to wrap "an experience" around whatever goods or services they sell.

While shopping mall owners may not acknowledge the need to provide an experience in so many words, it is clear that the commoditisation of malls is already an issue for US mall companies.

Efforts to create a unique environment - arguably, an experience rather than a service - have produced the Anti-Mall in Costa Mesa, California, which features grunge shopping, and the Third Street Promenade in Santa Monica, which tries to recreate the feel of a European street. Neither is identifiable as a shopping mall, yet both are all about shopping.

But the real question for developers is: Would the public pay to enter the experience? Messrs Pine and Gilmore point out that customers already pay for some shopping experiences. Examples include the Gilroy Garlic Festival in California and the Kitchener-Waterloo Oktoberfest in Ontario, Canada.

"Mel used to say, `If only we could charge a dollar for every person who visits one of our malls, that would be enough income for us'," Ms Corsaro says.

"And if we could start over, that is probably where we would start from," she adds. "But it would be difficult in any business where the consumer is used to getting something for nothing to begin charging."

Moreover, she argues, it is dangerous to confuse the concept of entertainment with that of an experience. "You don't need a laser light show to provide an experience," she says. Subtle attention to details - providing soft couches in the common areas instead of hard benches, for example - also adds to the experience of shopping.

Gauging the reaction of retailers to admission fees is difficult, but Ms Corsaro has a hunch. "I'll bet if we told them that they wouldn't have to pay rent, they would be thrilled," she says.

The Experience Economy, HBS Press, $24.95/£18.99 sterling.