The American mall is on life support, or so it seems. Since 2016 more than 1,500 stores have been slated to close by JCPenney, Macy’s, Sears, American Apparel, The Limited, and Abercrombie & Fitch. The trend is nothing new, customer traffic started to slow more than a decade ago, leading to many large department stores abandoning their leases. As the malls lost their largest revenue generators, they began to fail.
Some department stores are going out of business altogether, like The Limited which recently shut down all 250 of its stores.Others, like Sears and JCPenney, are aggressively reducing their store counts to unload unprofitable locations and stem the bleeding. Sears is shutting down about 10% of its Sears and Kmart locations, or 150 stores, and JCPenney is shutting down about 14% of its locations, or 138 stores.
What’s particularly alarming is that these chains are considered anchor stores- they’re the major shopping attractions the bring shoppers to a particular mall, and once they close the rest of the mall quickly follows.
The closures are mostly occurring at what have been labeled as C and D rated malls which represent about 30%, or 310, of all the malls in the United States. While top A and B rated malls are still doing well, it’s the C and D rated shopping centers that are leading the closure trend, and making headlines. Green Street Advisors recently reported that “the top 300-400 malls by quality should fare well for the next several years, but it is reasonable to assume that several hundred lower quality malls will either close or become irrelevant retail destinations over the next 10 years.”
Many malls continue to thrive, especially in rural areas where they serve as hubs for not only shopping but socializing, accessing quality healthcare, and jobs. So the question is what’s in store for new malls slated to be built, and what’s in store for those slated to close. Do they present a great opportunity for investment?
The Alternative future of malls- centers of innovation & necessity for communities?
Former malls as transportation hubs
Downtown Seattle turned a crumbling mall parking lot into a hub for it’s growing light rail system. The station is part of the $1.9 billion Northgate Link project, which extends light rail 4.3 miles from the University of Washington station at Husky Stadium to Northgate Mall. When the extension opens in 2021, rides from U District Station to downtown Seattle will take just eight minutes. Currently the journey from U District Station to Downtown Seattle takes 14-16 minutes by car, bus or Link rail.
Former malls as micro-apartments
The Westminster Arcade in Providence, Rhode Island — America’s oldest shopping mall — opened in 1828. Over time, the building fell into disrepair, and closed in 2008 for a $10 million renovation.In 2013, it re-opened as a micro-apartment complex. Today, there are 48 units (which average 300 square feet) as well as restaurants, a coffee shop, and a hair salon.
Former malls as medical clinics
Some malls have undergone far less drastic changes and filled space with walk-in medical centers. The amount of walk-in clinics in malls has risen 15 percent since 2011, according to data from the Urgent Care Association of America. In fact, a third of all urgent care is now located inside shopping centers, the group says.
Tom McGee, CEO and president of the International Council of Shopping Centers “Folks get a little too caught up in the stereotype of what a mall is,” McGee said. “Malls were built for people to do things that they have an interest in doing.” For some that’s getting
A new model for malls- longer visits & longer leases
While some malls are undergoing dramatic changes, others a simply adapting to changing American lifestyles with surviving malls becoming entertainment destinations. The goal for these mall is simple: bring in more foot traffic with things like rock climbing walls, luxury movie theaters and great fast casual restaurants, or become the shopping and entertainment arm of large casinos.
“The emergence of entertainment as part of the shopping mall is becoming very important,” says David Smiley, the assistant director of Columbia University’s Urban Design graduate program . “It keeps people in the center longer. And even if they weren’t going to shop for something, they get lured in.” In 2012 and 2013, the Carousel Center in Syracuse, New York re-branded as Destiny USA, and added higher-end restaurants, IMAX screens, an arcade, and indoor go-karting and obstacle courses. According to the mall, the 2.4-million-square-foot complex draws around 29 million people (both from the US and Canada) every year.
The move toward experience activities in malls is bringing in more customers, but it comes at a cost. Tenants have to invest more in construction and are encouraged to sign longer-term leases by property owners. Jeff Pedersen, CEO of Momentum Indoor Climbing, said his company put $2 million into tenant improvements to raise the roof of a former grocery store in Salt Lake City, allowing for higher walls. Momentum spent an additional $1.5 million on the necessary safety and workout equipment, he said.
This model is likely what will prevail for malls going forward. As ecommerce continues to swallow up portions of brick and mortar retailer’s market share, malls will be forced to innovate, and redefine what it means to be a mall. It’s not so much just about shopping but the idea of social experiences popularized, ironically, by the internet.
For many leading malls, and new commercial retail projects, their sucess will hinge on a balancing act between legacy retail and new entertainment and fast casual dining brands. The notion being, that by providing the right attractions to help boost foot traffic to their largest leaseholders will ensure people will continue to come to the mall.
However, by passing the cost of that innovation to the younger entertainment companies, they can offset the large costs associated with the reshaping of their locations, and remain profitable. For local communities it’s a win-win where zombie malls won’t be an eye-sore driving down land values, but they’ll also be able to hold on a little while longer to the notion of malls as center’s of American culture. Albeit one more focused on entertainment and health, rather than purely on consumption.