The American mall isn’t dead. And reports of its imminent death are greatly exaggerated. Yes, big box closures are hurting malls and mall traffic. Or maybe the other way around. Either way, the dilemma facing malls has to be seen as a precursor to change or an evolution of malls as we know them.
The first shopping mall was built in 1956, and between then and 2005 roughly 1,500 malls were constructed in the United States. Currently, there are about 1,300 still operating. So, one of the initial speed bumps is the considerable saturation of shopping malls and retail. According to ICSC, the United States has 23.5 SF of retail per capita, compared to 16.4 SF in Canada and 11.1 SF in Australia, the next two highest countries. Combine that with today’s evolving shopping habits, and it’s easy to see why many analysts are predicting the death of the mall.
It’s become increasingly difficult for many retailers to be profitable and maintain their existing store inventory. And that’s where we’re seeing a shakeout of weaker retailers in the market. The increased competition from online retailers and a saturated mall market has forced some companies to close up shop. Traditional mall anchors such as Macy’s, JCPenney, and Sears have all announced store closures. But is that a sign of the death of malls, or merely a consequence of failing to evolve with the times?
On the flipside, competition and saturation has forced many retailers to find ways to stay relevant, provide a retail experience, and to meet changing consumer demands. Eyeglass retailer Warby Parker is a prime example of a company that went the extra mile to satisfy new consumer habits. When implementing a point-of-sale system to be used across different platforms, the retailer saw flaws in each of the 30 existing programs it analyzed. So what did they do? They created their own. They knew that in order to fully satisfy customer demands and needs, they needed to go above and beyond what was offered.
That same mentality applies to many of the mall retailers who are fearful of the “death of malls” discussion. Those that have embraced omni-channel, immersive, engaging retail platforms will likely find ways to succeed. Those that don’t, are falling by the wayside.
And much of that has to do with economic shifts and changing consumer behavior. Millennials are spending less on retail and more on food, entertainment, and travel. Everyone is seeing this as the segway into the death of malls, retail, and everything as we know it. But these shifts in consumer habits, and closures of traditional retailers are opening doors to new users filling vacant mall spaces.
Property owners are finding new ways to backfill vacated space. New, unique users are stepping in to take space once held by the likes of Sears, Kmart, and Macy’s. New York-based Seritage Growth Properties manages a portfolio of more than 200 properties leased to Sears Holdings. Out of the vacant Kmarts or Sears that Seritage manages, only 33% have been re-leased to apparel and accessories. Other uses include:
14% Dining and Food
- 10% Entertainment
- 9% Home
In addition to the shift in users, Seritage also notes that while Sears was paying roughly $4.40 PSF, these new users are re-leasing the spaces at nearly 4.5 times that rental rate. So, we’re seeing signs of significant value-add opportunities in some of these store closures.
So, while there will definitely be more department stores that will continue to close, that doesn’t mean malls will go the way of some of these retailers. Creative uses and the emergence of new users and concepts will ensure that malls aren’t going to die, but evolve.