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HomeretailWithout rebirth, malls face extinction: Developer

Without rebirth, malls face extinction: Developer

American malls are facing a rebirth, and without a complete reinvention, they will be extinct within 10 to 15 years, the head of one of the nation's largest privately held real estate companies says.

"At one point [the indoor mall] may have met the developer's needs—and even for awhile, the consumer's needs—but it has outlived its usefulness," Rick Caruso, founder and CEO of Caruso Affiliated, said in a keynote address Sunday at the National Retail Federation's annual convention in New York.

In order to compete with the growing presence of online retail—which, according to comScore, saw desktop sales increase by 10 percent this holiday—physical stores need to focus on delivering an experience that customers cannot find on the Web, Caruso said. What's more, physical stores cannot only consider themselves to be in the retail industry, but need to embrace the hospitality industry as well.

The Westfield North County Mall in Escondido, Calif.Sam Hodgson | Bloomberg | Getty Images

"It's easy to get distracted by the relentless conversation of the Internet versus brick-and-mortar, but now more than ever what we need to do is focus on what has always been and what will always be essential to our customer: creating an experience that is magical, creating an experience that is memorable," he said.

(Read more: What put the brakes on red-hot online sales growth)

For Candace Nelson, founder of Sprinkles Cupcakes and a speaker on the panel, this has meant the invention of a cupcake ATM machine, where consumers can swipe their credit card at a machine and get a freshly baked cupcake at 2 a.m.

At Caruso's properties, which include the Grove in Los Angeles, it's meant features such as a trolley, which makes children want to visit the shopping center, or offering dining options so husbands don't rush their wives while they browse.

(Read more: Expert predicts a long, slow bleed for Sears)

"Embrace your advantage, which itself is disruptive to the technology that thinks it's so disruptive to you," Caruso said.

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