NEW YORK (MainStreet) – With the meteoric rise of online retail in the late ‘90s and early 2000s, there was some speculation that malls would soon go the way of the dinosaur as consumers got used to shopping from home. And indeed, recent years have seen many malls close down and others become partial ghost towns full of empty storefronts, though that has as much to do with the recession as it does with e-commerce.
Despite that, the shopping mall endures: As of 2009 there were nearly 105,000 shopping centers in the U.S., according to commercial real estate analyst CoStar. America’s love affair with the mall isn’t going to disappear any time soon, even if a few of the stores have.
That doesn’t mean the American mall is going to look the same, though. While we won’t claim to see the mall of the future in a crystal ball, we can tell you what trends you can expect to see in malls over the next few years; some have already begun.
Fewer (Bad) Malls
Consider this: According to CoStar, the number of new shopping centers grew from 88,143 to 97,105 from 2000 to 2005, a rate of nearly 2,000 a year. Between 2008 and 2009, by contrast, that number grew by less than 800. We’re still building malls faster than old ones are closing, but that growth has slowed considerably.
“The problem with new malls is that they’ve been building since the ‘70s, so they’ve got all the geography covered, and the only way to justify new construction is when there’s significant population growth in a new area,” says CoStar’s Chris Macke. “There will continue to be mall development but it won’t be at a great rate – the market is saturated, so you need to have more rooftops in an area [before you can build].”
Unfortunately, new rooftops are hard to come by these days. New home construction is at a 50-year low, and no retailers are going to get on board with a new mall unless there are enough new residents to support it.
As new mall construction stalls, existing malls will also shutter as the economic downturn continues to show its effects. And some analysts believe that it’s the malls that cater to higher-end clientele that will survive the cull.
“There are 300 or 400 malls that are golden; the problem is the rest of them,” says Howard Davidowitz, chairman of Davidowitz & Associates, Inc., a national retail consulting and investment banking firm. “Upscale stores with five or six anchors are going to be fine. If you’re a two-anchor, dumpy mall, there are going to be problems when Target builds a store next door and suddenly you’re overpriced.”
In other words, upscale malls with established anchor stores have less to fear from discount stores than smaller malls in less affluent areas. Just look at the Mall of America in Minnesota, which has had the same four anchor stores at its four corners – Sears, Macy’s, Nordstrom and Bloomingdale’s – since its inception in the early ‘90s.
The economics are likewise in luxury’s favor when one considers that the luxury retail sector was fastest to pull itself out of the recession. The rich will always have money to burn on luxury, while the other half is more likely to choose Wal-Mart for its shopping needs than go to the mall.
“We’re a country that has a sliver of great wealth, and we’re going to continue to have that,” says Davidowitz.
More Apparel and Discount Retailers
While established malls like the Mall of America aren’t going to lose their Nordstrom anytime soon, Davidowitz says that big department stores may not necessarily be the anchors for the malls of the future. He points out that department store chains from Sears to Macy’s have shifted their focus to online retail and outlet stores.
That means that the anchor stores of the future are just as likely to be a Target or Costco as a Macy’s or Bloomingdale’s.
“Some of the big box stores that we wouldn’t see as mall anchors are going in – Target, Costco, Bed, Bath and Beyond,” says Dan Butler, vice president of retail operations for the National Retail Federation.
That doesn’t mean that apparel is dead, though. Outside the anchor stores, apparel has seized a larger share of the mall’s floor space over the years. According to the International Council of Shopping Centers, the share of non-anchor space dedicated to apparel retailers grew from 46.6% in 1997 to 53.8% in 2006. The group attributes the increase in large part to the growth of family apparel stores and brands like Abercrombie & Fitch and Banana Republic.
Indeed, a comparison of the Mall of America’s current store directory with its initial store list that shows a variety of non-department apparel retailers have come to the mall since its introduction in 1992, including Aeropostale, American Eagle and Old Navy.
You may not always be able to go to the mall and have your pick of giant department stores, but there will always be plenty of places to buy clothes.
New Offerings Beyond Retail
While many shopping malls have closed their doors for good, though, others got creative.
As MainStreet reported last year, dying malls across the country have found new life by repurposing vacant sections to host everything from farmers markets to water parks. And as malls have had difficulty filling vacancies with tenants from the sluggish retail sector, that trend of finding alternate uses for the space should only continue.
“If you’ve got a four-story mall, you can rent out the top floor as office space,” says Butler. “During the recession, property owners had to say, ‘How do we evolve with the economy?’” Indeed, he says that many developers are eschewing traditional shopping malls in favor of “lifestyle centers” that combine retail with office space and condos from the beginning.
“You’ll see alternative uses on a lot of [malls] – mixed use and condos,” agrees Davidowitz.
Malls will also fill space – and attract customers at the same time – by placing a renewed emphasis on entertainment properties. Movie theaters, for instance, have been attached to malls for years, and experts predict that more malls will take on theaters as tenants in the years to come. That’s in part due to the increasing amount of vacancies, but it has as much to do with the needs of the theaters themselves.
Butler notes that Netflix, piracy and video-on-demand services have all cut into theater owners’ profits as consumers realize they don’t need to go to the theater for their entertainment. That has the movie industry pulling out all the stops to salvage profits, and that includes relocating to malls where there are more potential customers around.
“You see more freestanding theaters that have closed, while those attached to mall do better because they have more foot traffic,” he explains. “You’re going to see more theaters try to reposition themselves closer to areas where there are malls.”
Malls seeking to place a greater focus on entertainment will likewise seek to upgrade their existing theaters to larger multiplexes, thus attracting more movie-goers (and by extension, shoppers).
“They want to give more of an experience,” he explains. “They’re replacing their little two-plex movie theater with a twenty-plex one.”
Ultimately, then, the American mall faces not extinction but metamorphosis. In the place of traditional department stores will come big box retailers, and smaller clothing retailers like American Eagle will pick up the slack on the apparel front. Bigger and better movie theaters will glom onto the mall, to both parties’ mutual benefit. And in malls with large vacancies, diverse new tenants will appear, whether they be offices, condos, churches or water parks.
“Malls are going to have to be different somehow,” says Davidowitz, “but I’m not predicting the end of malls.”
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