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Sozzi: The Old Mall May Be Dying but the Food Court Is Booming

NEW YORK (TheStreet) -- Malls as we knew them growing up (provided you are over the age of 15) are dying.

By January 2015, there will be hundreds upon hundreds of new store closures that spread across the United States like the black plague. The stalwarts of the mall, apparel chains such as Abercrombie & Fitch (ANF - Get Report), Aeropostale (ARO - Get Report), Gap (GPS) and American Eagle Outfitters (AEO) continue to shutter borderline profitable stores before rent expiration (and bring in a spinoff brand, for example Gap Kids, inside the mother store to cut costs) due to significant margin pressure brought on by Internet price discovery and the prominence of fast-fashion retailers H&M and Forever 21.

As more leases come up for renewal at these companies in the next three years, further lights will go dark. Keep in mind that this activity is occurring alongside a RadioShack (RSH) that is unlikely to be in business for much longer, a Sears (SHLD) undergoing a self-imposed slow liquidation, and a J.C. Penney (JCP) that is likely to announce a new round of store closures in 2015. While it's quite possible the next game-changing American business will be hatched from inside the walls of a defunct RadioShack, the mall itself is decaying. That is depressing.

However, all is not doom and gloom for the U.S. institution that is the mall. I expect malls to ultimately be reclaimed by the community, where a sprawling former Sears will serve as a small business incubator or job training site for the local college, a place to store cloud-supporting servers from IBM (IBM), or distribution centers for those retailers with same-day delivery ambitions. Heck, a J.C. Penney could be retrofitted into a hospital to cater to the influx of aging baby boomers that are bound to require treatment.

But for right now, such a mall evolution is starting in small increments, specifically the food court. Mall owners are reinventing food courts to include warmer lighting and seating areas, as well as healthier chains founded by people that have grown up watching the Food Network. The desire to "upscale the food court" is rooted in the mall's attempt thieve traffic from off-mall eateries that consumers are obsessed with, namely Chipotle (CMG), Starbucks (SBUX) and food trucks local to the market.

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Here are a couple of items to know on the food court boom:

  • On average, 7% of shoppers actually visit a mall solely for food. That suggests a meaningful opportunity for share gain on the part of malls with improved food options, decor, and marketing. Just think -- 93% of shoppers visiting the aforementioned casual dining institutions outside the mall and not interacting with the retail tenants.
  • A food court could register about $700 in sales per square foot compared with $250 to $450 per square foot for an apparel retailer; the latter figure will continue to be squeezed from increasing online/mobile consumption and the resulting discounts offered by retailers to lure in traffic.
  • A former 105,000 square foot Saks store in the Florida Mall is in the process of being converted into a giant food court, seating 1,400, or double the capacity of the existing food court. Now that is evolution, turning dead space into a true community common area.

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

At the time of publication, the author held no position in the stocks mentioned.

Brian Sozzi is the CEO and Chief Equities Strategist of Belus Capital Advisors. He is responsible for developing and managing an equities portfolio of mid- and large-cap positions, in addition to leading the firm's digital content initiatives. He is also a personal finance columnist for Men's Health magazine.

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