Are Malls Dying?

It has become an article of faith that mall traffic is down, from Signet to  Victoria’s Secret to Gap. And while it’s hard to get solid data on this­—ShopperTrak told me it longer offers it—no one doubts traditional shopping malls face tricky days ahead.

The most immediate problem: Big anchor tenants like J.C. Penney and Macy’s are closing hundreds of stores. According to real estate company CoStar, nearly a quarter of U.S. malls risk losing their anchor store.

That’s a huge problem, because once those big tenants leave, they are hard to replace. One retail analyst predicts that one-third of U.S. malls will close their doors in the coming years. Some Wall Streeters are now actively betting against loans taken out by shopping center operators, according to Bloomberg.

The main culprit here is, of course, the growing power of online. Malls became dominant because they offered a wide variety of products under one roof. But now shoppers have the equivalent of a shopping mall—even hundreds of malls—on their phone. And with teens increasingly “hanging out” on social media, they no longer have to spend their afternoons gathering at the mall.

In a way, this represents history catching up with us. America has long been considered “over-malled.” We have 2,353 square feet of shopping center space per 100 people, nearly double that of any other nation, according to CoStar. This shakeout has been a long time coming.

Malls have tried to combat traffic drops through a variety of measures—some not particularly praiseworthy, like tracking consumers who sign on to their Wi-Fi. But mostly, they are diversifying, reaching out to nontraditional tenants like doctor’s offices, dry cleaners, and grocery stores. Some are beefing up their entertainment options, like laser tag and carousels, turning themselves into de facto amusement parks.

As one veteran retail executive told The Washington Post, “There’s a mall in Palm Beach with two or three schools in it, a synagogue and newspaper publisher in it, and a place where you can buy a cup of coffee and doughnut. There’s not a single retail store in it.”

New malls are still being built, but many of them—like New York City’s Westfield World Trade Center, aka The Oculus (pictured), located adjacent to JCK’s new offices—are notable for being attractions in themselves.

In a way, malls are getting back to being central meeting places, which is how they were originally envisioned. (The inventor of the mall was a socialist, who dreamt they would function as European-style meeting places. He died disappointed.)

But as far as traditional retail centers, we are seeing a stratification of the market. Just like the U.S. economy is breaking down to the 1 percent and everyone else, so it is with malls. Green Street Advisors notes that despite the rise of e-commerce, the value of top-rated “A” malls has actually increased in recent years. A lot of the rest, however, could struggle, and some may not be long for this world.

(Photo courtesy of Westfield Corp.)

 

JCK News Director


  • jeffrey post

    None the less the whole problem is over inventory. Even though you can’t sell enough of what we all already have everyone is hell bent on building more. Lets get real. Remember the car companies collapse, the tech bubble, the housing bubble, the financial crises. the recession, etc. Our industry as well as all these huge retail outlets have too much for too few who are willing to buy it. There is no differentiation. It is really really sad. Doesn’t matter any longer about what or how much at this point. It’s gluttony and it’s a shame. So what can be done? I don’t have the answers but we all need to rethink our business models and make jewelry EXCITING again. Suggestions, ideas and comments greatly appreciated. Just trying to help.

  • We are way overbuilt. I cannot recall the last time I went to a mall. Overpriced and overhyped – extremely boring. There is nothing unique and Macy’s is one of the worst stores. JCP is going bankrupt as is Sears. The days of the malls are over and it still does not make sense why the mall REITs are trading at such high valuations..

  • benjanow

    All good points, in the article and in the comments. Maybe the most important one is societal and generational change. Retail formats have come and gone before (remember catalog showrooms?), which accounted for malls taking over from Main Street. But now we are experiencing something very different. Yes, Internet retailing has blossomed as a new retail format, one that does not have to pay high rents, but we also see the middle class hollowed out. It is that middle class that bought jewelry for decades and accounted for the success of hundreds of malls and store chains. Those days are not totally gone, but the business has refocused on stores that are well-positioned – the right locations, management, merchandising, service, promotion, and staffing. Those stores, composed mostly of strong independents and global brands, are doing very well. Most other retailers (not just jewelers) are scrambling for a piece of a shrinking middle-class pie.

  • Gerald Gerry Weber

    Mall owners are their own worst enemies. They instruct their employees to view tenants not as customers but rather as people to be pillaged. They do not care about their tenants in any way.

    • FFJEWELER

      This is spot on in regards of relationship mall/tenant. The Malls are relying on tenants to drive the customer to the mall trough advertisement instead the other way around.
      From a landlords , Malls are trying to become a partner in the business, despite the high rents and overages they charge.

  • Sara Olsen Ritchie

    I question the ” We have 2,353 square feet of shopping center space per person, nearly double that of any other nation, according to CoStar” Please answer: Approximately how many square feet of mall space is there in the US? Thanks

    • Rob_Bates

      It’s per 100 people. That was my mistake, since corrected. If you click on the link you can get more info.

  • #JCK is on the bleeding edge (https://www.jckonline.com/editorial-article/j-c-penney-ceo-predicts-more-store-closings/ & https://www.jckonline.com/editorial-article/macys-to-close-68-stores-by-mid-2017/) but Luxe Licensing’s R&D is showing America’s malls aren’t “dying,” they’re morphing. Beyond the augmented reality in some stores like #Sephora or #TopShop, take a look at a recent Forbes Report. https://uploads.disquscdn.com/images/30c3e1dd8e1df9010f2f67e9760c8be04dd14002a620da4e346101850bef5a49.jpg

  • Daniel Danilov

    There are 4 main points from this article:

    1. Traditional anchor tenant retailers are struggling
    2. America is oversupplied with malls
    3. The concept of a mall is shifting from shopping to experience
    4. Top tier malls are thriving

    I agree that there the US is ‘over-malled’ and that the online shopping boom has had a significant impact on brick-and-mortar retail, however we must remember that online still only represents 9% of all retail sales. Point #3 is predicated on the generational shift from ownership to experience with malls leveraging this demand for cool experiences rather than typical big box retail stores. Lastly, the Grade A malls mentioned in the article continue to grow and succeed because they have embraced point #3 and they also see online/technology as an opportunity, not a threat. For example, Westfield have launched their ‘Searchable Mall’, allowing shoppers to browse in-store products online before coming into malls for purchase.

    Companies such as Mall Ops are helping mall operators with the tricky, yet necessary transition into the online world from traditional brick-and-mortar retail.

  • That’s a huge problem, because once those big tenants leave, they are hard to replace. One retail analyst predicts that one-third of U.S. malls will close their doors in the coming years.