PORTLAND, Ore. (TheStreet) – Call it Back To School, B2S or some other little moniker indicating an end-of-summer retail holiday: It's just another reason not to go to the mall.
Once a necessary end-of-summer stop packed with clothes, food courts, arcades and expendable income, the giant indoor mall just keeps limping toward its demise. ShopperTrak, whose entire purpose is to gauge retail foot traffic, says the number of folks who passed through indoor malls last year dropped 15% from the year before and has been falling steadily.
The National Retail Federation has tried to be somewhat optimistic. The retail industry group notes that the $26.5 billion consumers are expected to spend on back to back-to-school items for kindergarteners through high school seniors is down from last year, but that spending per student is up to $669 from $634. Altogether, school and college shoppers are expected to spend roughly $75 billion before the school year starts.
At the National Retail Federation convention in New York in January, Rick Caruso — chief executive of real estate company Caruso Affiliated — basically told retailers that consumers aren't going to be shy about taking their money anywhere other than a staid, dying indoor mall.
“Within 10 to 15 years, the typical U.S. mall, unless it is completely reinvented, will be a historical anachronism — a 60-year aberration that no longer meets the public’s needs, the retailers’ needs or the community’s needs,” he told his convention audience.
As analysis firm Green Street Advisor said two years ago, 10% of the roughly 1,000 large malls in the U.S. will fail by 2022. A report from Co-Star found that there are more than 200 malls with more than 250,000 square feet that have vacancy rates of 35% or higher, a “clear marker for shopping center distress.” Even Simon Property Group, a giant mall developer, just spun off a whole bunch of underperforming malls into another company called Washington Prime Group. Those properties include relics including the Lima Mall in Lima, Ohio (built in 1965), and Chataqua Mall in Lakewood, N.Y. (built in 1971).
Blame the Internet if you'd like, but that's ignoring the bigger problem. According to the NRF, Internet sales reached 6% of total retail spending in the fourth quarter of 2013. That's nearly doubling their share from 2006, but still small in the scheme of things. More than 33% of back-to-school shoppers and 45% of college shoppers plan to do some portion of their shopping online, but that's still smaller than the percentage heading to clothing stores (54%), discount stores (64%) and department stores (59%).
Tim Worstall at Forbes noted last year that online sales should diminish physical store space by roughly the same percentage as they grow. Daniel Hurwitz, president and chief of mall operator DDR, put it even more bluntly: "I don’t think we’re overbuilt, I think we’re under-demolished."
Even ShopperTrak noted that while the number of unique mall shoppers has remained relatively stable over the past decade, store visits are plummeting. In 2007, shoppers typically visited about five stores per trip. Today, that's down to about three as shoppers get more focused on the actual shopping and spend less time using the mall as a recreational activity.
The mall industry's reaction to this has been simple: Let the old malls die and give customers the malls they want. Mall giants Simon and Westfield have each shifted toward outdoor outlet malls with bigger floor space and fewer retailers. According to Capri Capital Partners, sales per square foot at outlet malls rose 9% from 2010 to 2012, while traditional malls got a more slight 4% bump. At the same time, outlet malls enjoy relatively low 5% vacancy rates while more traditional malls are seeing vacancies of 10% to 15%. That's sent the rent per square foot for traditional malls plummeting since 2007.
It's also put the squeeze on mall mainstays such as PacSun, Aeropostale, Abercrombie & Fitch and American Eagle — all plagued by slow sales and low earnings. According to a Piper Jaffray Taking Stock with Teens market research study, 82% of teen spending is still done in bricks-and-mortar stores. After all, it's a lot tougher for teens to max out credit cards shopping online after the Credit Card Accountability Responsibility and Disclosure Act of 2009 required anyone under 21 to either have a cosigner or verifiable income. But it's a lot easier to spend at the mall when you work there or are otherwise employed.
The Bureau of Labor Statistics notes that 4.5 million teens age 16 to 19 were employed in July, down from 5.5 million last year. Though the number of unemployed teens of that age shrank from 1.86 million in July 2014 to 1.1 million this July, the number that just left the workforce altogether rose from 9.5 million to nearly 11 million. That dragged down participation rate from 41% of all workers age 16 through 19 in summer 2012 to just 27% this year.
Less expendable income and fewer friends working at the mall means less hanging out and more focused shopping. According to survey by market research firm Scarborough, 61% say they have less money to spend at the mall than before, and 37% say they're going to the mall less often. While 40% of teens spend between two and three hours at the mall, 32% are spending far less time than that hanging around. When they're at the mall, less than half of all teens say they're there to socialize or be entertained. When asked what they do there most often, 71% gave the obvious, but fairly straightforward answer of “shop."
While people still use mall dining facilities, they're not there for any longer than they have to be. They're using coupons and the average shopper tops out at $75. Oh, and they're spending more on less. At a recent Piper Jaffray Consumer Conference, a panel of high school students said that they planned to spend some of their back-to-school cash on Coach and Michael Kors handbags, Louis Vuitton iPad cases and Kate Spade wallets. By couching those centerpiece accessories in cheaper items from fast-fashion stores such as H&M or Forever 21, they're spending more on style and moving away from the lower-tier logos of mall stores past.
Back-to-school shopping will never revive the dead or dying malls as they crumble amid their asphalt acreage in the middle of nowhere. If they're not teeming with high-end outlets or chopped up to look like fake city blocks, those retail ruins are going to fade into memory as quickly as the past school year.
-- Written by Jason Notte in Portland, Ore.
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