Besides the loss of two of humanity’s favorite entertainers (RIP Dolly & Tim), the internet has also been aflutter this week on another topic.👇

Let me break down this headline:

GGP, one of America’s largest mall owners, has been rolling out a program that charges guests a small fee (around $5) to park in the spots closest to the mall — in suburban markets where mall parking is usually free.

And “it’s not going well” because people are flipping their damn lids.

👉 If you want to charge more for shit, you must add actual value.

👉 The problem is that determining value is the trickiest exercise in business.

And now — the story behind why this advice matters. 👇

Heaps of other suburban retail properties have instituted a charge for premium parking over the years, with mixed results.

And on the surface, it sort of feels like a “what’s the big deal?” situation, no matter which side you sit on.

For shoppers: It’s a few extra bucks if they want to park closer to the mall entrance. Otherwise, they have their pick of thousands of other spots in the lot that are still free. Why TF are they losing their minds over this?

For mall owners: It’s a tiny sliver of revenue, maybe 2% of the pie if they’re lucky. So why risk angering a bunch of loyal shoppers who can so easily hop on social media to noisily air their grievances to the entire world?

This problem boils down to one defining business principle: Value.

And there are two competing value equations at play here. Stick with me for a moment, I promise the math will be minimal, and I’m going to explain all of this in the form of good goddamn story:

So for customers, value is the difference between what they give up and what they believe they get in return.

For owners, it’s more complicated. 

Value is calculated not just by the annual profit they’re earning from the premium parking program itself, but by how that income (and the future value of that income) increases the overall value of the physical asset. 

So, let’s just say their premium parking program brings in an extra $300k for a mall that earns $20M in annual profit (called net operating income or “NOI” in real estate). You might look at this and say:

“Shit, that’s just 1.5% of earnings, and less money than your CEO earns in a fortnight. You’re pissing people off for peanuts.”

But let’s examine how real estate is actually valued. 👇

Now let me be clear — this only works… if it works. 

If TikTok warriors are complaining about the new parking program to the point where the mall’s visitation declines, tenants start bouncing, and reputational problems proliferate (like USA Today running a story about how you’re pissing people off), then they’re in trouble.

Adding an extra $300k of NOI through a premium parking program by trading $600k of NOI elsewhere is a shitty financial decision.

But why are the TikTok warriors so livid?

A parking spot that is 10 feet away from the mall’s entrance is dramatically more convenient than a parking spot that is 1,000 feet away. Convenience is inherently valuable, and something plenty of businesses charge extra for, reasonably, and without complaint.

In this case, however, customers believe that GGP has taken something that was previously part of the basic experience — so they can sell it back to them. They’re thinking: 

"Yesterday, this parking spot was mine. Today, you’ve deliberately made my experience worse unless I pay you.”

In the eyes of the customers, GGP didn’t create value. They stole it.

If you’ve been reading Drunk Business Advice for a while, you may recall that I lived in Australia for a few years and developed the largest ice sports and entertainment center in the Southern Hemisphere. In today’s dollars, it was an $83M project within a $1.2 BILLION DOLLAR master plan development. 

Soooo… kind of a big deal.

This development was owned by the real estate division of ING — a behemoth Dutch bank who was, quite understandably, anal about the numbers. They weren’t developing this venue because they wanted to own an ice rink. They just wanted to create value, sell it, and make a shit-ton of money. 

Which I generally don’t have a problem with, as long as we can all agree on how that value is created.

And I believed we did. Our mission statement was: “To create a vibrant ice skating culture in Victoria.” 

And I was also 100% on board with the brand positioning. 👇

But when ING finally handed over their proposed business plan, things got hairy. It was up to me to audit this thing for missed opportunities and unrealistic projections, and re-craft it so the business would have the highest likelihood of success.

And lord, this plan needed a lot of work. Luckily, ING was amenable to most of my rewrites, but we battled to the death on one particular initiative:

They planned to charge every damn visitor $5 just to walk through the doors. It was a blanket admission fee. And it was tearing me up inside.

ING’s perspective was: It’s peanuts for the customer, but it will add up to a huge slice of revenue for us — with no added expenses. 

My perspective was: F*ck that. Our sustainability as a business is reliant on encouraging as many people as possible to spend time in our building. If they don’t spend time in our building, it’s harder to get them to enroll in our programs, and impossible to get them to take advantage of other ancillary offerings, like F&B and retail. 

And it wasn’t peanuts for the customer. Imagine a family of four:

This entire scenario was quite literally the opposite of our mission “to build a vibrant ice skating culture in Victoria”.

But beyond all that, I knew one other thing — these customers were going to hate our guts. Because they were being asked to pay for something that carried no inherent value. 

My problem, however, was that this initiative represented a meaningful portion of the expected revenue that ING had underwritten the entire project based on. They had already spent the money on construction — we were only a few months away from opening our doors.

So if I wanted to get rid of the shitty admission fee program, I had to find that revenue somewhere else.

This was a tricky one. Ice skating isn’t a scalable product. There are only so many hours in the day, and so many pairs of skates that can fit on the ice in a single hour.

And believe you me, we were already maximizing our programs everywhere we could. There was very little meat left on that bone.

Now, there was definitely extra revenue I could validate on the F&B and retail sides of things if we were to be encouraging people to visit and linger. And I could reduce our marketing expenses by a tad — it’s easier and cheaper to market to people inside your building than outside it.

But that still wasn’t going to make up the difference in the early operating years. A sustainable sports program takes a few years to ramp up to a place where it can capture true value-add opportunities. (There’s only so much you can deliver at a grassroots level.)

But what about the…. non-sports programs? 

Every Friday and Saturday night we planned to have a live DJ perched above one of our rinks, spinning the night away under a state-of-the-art light show.

Bingo.

In the existing business plan, there was an admission and skate rental fee for customers who wanted to skate during these events, but non-skating visitors were to be charged the same $5 that hockey parents were expected to pay for the privilege of supervising their own damn kids in the locker room.

This made zero sense.

The environment we were creating for these weekly DJ nights had inherent value on their own, and the market was accustomed to paying for that kind of entertainment. Folks don’t bat an eye at paying a cover charge to get into a hoppin’ party with a live DJ. 

So instead of charging $5 to walk in the door on Friday and Saturday nights, I proposed we triple it to $15. We were under-valuing the experience of a live DJ, light show, and party environment — and over-valuing the experience of taking your kid to her ice skating lesson.

That change covered the spread. 🥰

As I mentioned before, charging for convenience is usually tolerated pretty well by customers. And as an urbanite, paying $5 for premium parking feels completely acceptable from where I sit.

The problem is that this convenience was previously offered for free in the suburban markets where these malls are located. 

So these customers don’t see any value, and instead feel taken advantage of by a big, mean, jerk-of-a-corporation.

If I were advising GGP, I’d encourage them to find their own “DJ night” solution. Instead of charging $5 for a convenience that the customer believes was stolen from them, how can they create $15 of real value instead?

Maybe it’s new shaded parking spots, or EV charging, or help delivering shopping bags to their car. Maybe it’s a night-time security escort, or a reserved spot during the Christmas season, or something as simple as a good-old-fashioned valet service.

The solution probably varies from market to market, but the exercise remains the same.

GGP needs to change the conversation from "They're charging me to park at the f*cking mall now?” to “Have you tried that amazing new upgrade at the mall yet?”

I wish them well. This stuff’s not easy.

Cheers! 🍻

-Kristin :-)

P.S. — I don’t just write Drunk Business Advice — I bring it to life on stage. And I’d love to speak at your next event. Hit reply or click here to learn more.