We are inherently pleasure seekers. So why is a visit to many malls in the U.S. such a boring, unpleasant experience?
With stale merchandise, irrelevant brands and competition from the Internet, the steady litany of store closure announcements should come as no surprise. And as doors shutter on once-mega retailers like Macy’s and Sears, there’s no doubt the mall, as we know it, must change. And maybe that’s a good thing, given that so many of them are decades-old, cookie-cutter, cut-and-paste versions of each other. But what’s next? That’s the question on everyone’s mind.
“Until we see the list of the 100 stores [Macy’s is set to close], it’s largely unanswerable,” said Jan Kniffen of J Rogers Kniffen WWE. For the well-trafficked “A” malls, Kniffen said retailers like Dicks or Primark could easily fill that space, as could a movie theater chain like AMC, a grocery store or an off-price merchant.
In the case of struggling “C” malls, the outlook is quite different.
“It is very likely that the mall owner has to reacquire the space and figure out how to redevelop the mall,” Kniffen said. “Since there are very few tenants that can occupy these large footprints, my guess is the mall owner/operator breaks it up and tries to make his mall much more ‘experiential’ with restaurants, bars, theaters, and anything else that people go ‘to do’ as opposed to just shop.”
Mark Cohen, director of retail studies at Columbia University, agreed that in the case of “A” malls, landlords have quite a few viable options. Those cases, however, are the exceptions and not the rule.
“Macy’s isn’t closing ‘A’ mall stores,” he said. “Landlords at ‘B’ and ‘C’ malls may be unable to re-lease Macy’s anchor space in any conventional and economically viable way.”
And even if they get creative and look beyond retail for tenants like community colleges, municipal agencies or call centers, Cohen warned it may not be enough, given that department store departures mean footfall will likely plummet. So, no anchor, no specialty stores—and ultimately the mall is sunk.
Fewer malls overall may be inevitable though, according to Andrew Couch, managing director of real estate at Gordon Brothers. As he sees it, we’re over malled. The fate of the top tier malls, which will thrive thanks to “financially sound and technically savvy owners,” is clear. Similarly, the bottom tier, which face eroding foot traffic and rampant vacancies, has a fixed destiny.
“It’s the outcome for the third in the middle that’s questionable, where investment and creativity by owners can create a new mixed-use destination, replete with some housing, offices, medical, grocers, a food hall and a fitness center. In sum, an enhanced experience,” Couch said. “These properties require well-funded owners willing to invest in technology and recreate a site mix that reflects the local community and the way people live and shop today.”
Tom McGee, president of ICSC, the international shopping center trade organization, agreed that the new mall must evolve and reflect the local consumer.
“Malls are a community hub with the tenant curation tailored to meet the needs of the specific community in which they are located. On an industry-wide basis, I think you will continue to see the addition of more experiential offerings such as entertainment, restaurants, and technology-driven experiences to meet the needs of the modern consumer.”
“Entertainment” and “experiences” are two top buzz words whenever talk turns to bolstering retail, but it’s not a panacea. Randy White, CEO of White Hutchinson Leisure & Learning Group, an expert on the out-of-home (OOH) entertainment market, said even entertainment has its limitations.
“Now that we have truly entered into the experience economy, the answer seems to be to replace the purchase of stuff with the purchase of experiences, including dining and drinking and various forms of entertainment,” he said. “These experience venues are becoming the new mall anchors. But the OOH entertainment market is limited. In fact, like retail, it is shrinking, slowly losing leisure time and discretionary spending to e-leisure—all the at-home and screen-based digital options consumers have.”
According to White, while overall OOH spending is decreasing, there are still opportunities with the higher socioeconomic consumer when they’re offered high-quality entertainment paired with equally high-quality food and drink options.
“That makes it a good fit for the ‘A’ malls that want to continue to attract those consumers,” White said. “For the struggling ‘B’ and lower quality malls, it is probably not the answer.”
But that’s just it. The group agreed there is no one answer. Virtually everyone we queried said that solutions to store closures should reflect the particular real estate sites in each specific market. Demographics is not the metric, psychographics and lifestyles are. Solve for these, and you have a chance to restore vibrancy to a mall.
“If we are talking about 100 Macy stores, I will bet we are talking about 100 individual solutions, and in some cases, no solution but a big, dark space,” Kniffen said. “Some malls do survive with one less anchor, or even two less. But, the character of a lot malls, if they survive at all, is going to change as Macy’s goes dark in 100 locations, and as Sears goes dark in a lot more than that. I’m convinced that today’s 1,100 enclosed malls are destined to be 550 to 700.”
Predictably, McGee, has a more optimistic view.
“The retail real estate industry has done a very effective job of managing store closures in the past with current occupancy rates at over 93% and growing sales,” he said. “This means that while stores have closed, the demand for new space is meeting, and in many cases, exceeding current supply. We expect this will continue with property owners finding highly effective and profitable ways to utilize newly freed up space.”
Mall operators along with their tenants must up their game to first capture attention and second drive foot traffic. Technology can even be part of the solution. The rest is a bespoke assortment of brands, services and experiences for the local community. The answer is not scalable, but if done right, can reap long-tail returns.
Marie Driscoll, CFA is an industry analyst focusing on apparel brands, retailers and luxury goods and providing consulting services to academia, industry, investors and non-profits through her firm, Driscoll Advisors.
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