Shopping malls once dominated the retailing industry. No more. As many as 25 percent of all U.S. malls will be closed in the next five years.
From the 1950s when they were initially built, through the early 2000s, shopping malls were the backbone of retail shopping — attracting consumers with convenient parking and a wide selection of stores in one place. With the emergence of online shopping and changes in consumer preferences, shopping malls have lost their allure. 2017 may be a pivotal turning point in their survival.
Fung Global Retail & Technology, a research firm that tracks retail store openings and closings, reported that as of May 2017 announcements of store closures in the United States increased by 97 percent over last year, to 3,296 locations.
Currently there are about 1,100 malls in the U.S. Bank Credit Suisse expects 20 percent to 25 percent of them — or roughly 220 to 275 shopping centers — to shut down over the next five years as a result of all the store closures happening this year.
Large store chains such as Macy’s, J.C. Penney, and Sears that are anchors at many malls are closing hundreds of stores. It is often difficult to replace them because they occupy locations at mall entrances that are often at least 100,000 square feet. When anchor stores close and are not replaced, mall traffic to other stores decreases substantially because the anchor stores are what draw shoppers.
Usually it takes several years for a mall to close. Generally malls can survive with a few empty stores but as leases expire for the healthy stores, they close as well because of declining foot traffic.
Thousands of Store Closures
Sears, which owns Kmart, announced another round of store closings in June and in March stated that it doubts that it can survive. Macy’s is closing 68 more stores this year after closing many stores last year and J.C. Penney is closing an additional 138 stores by July. Women’s apparel retailer Bebe is closing all 170 of its stores and will shift to online sales exclusively.
Another women’s clothing seller, Rue 21, announced 400 store closings. Footwear chain Payless announced the closure of 408 stores, provided it can get out of existing leases. Recently, The Limited shuttered all of its 250 stores. Sports Authority closed all its stores and filed for bankruptcy last year.
Ascena Retail Group, which owns Ann Taylor, Dress Barn, Loft, Lane Bryant, Justice, Maurices, and Catherines, just announced plans to close between 250 and 650 locations over the next two years. Children’s clothing retailer Gymboree, which has 1,300 locations, announced it is filing for bankruptcy with the intent to restructure. The company has been advised to close 375 stores.
According to real estate consulting and management company JLL, department store closures this year alone will result in up to 37 million square feet of newly vacant mall space. Additionally, even brick-and-mortar retailers that are financially healthy are taking precautions, asking for lease renewals of one or two years rather than the customary five to nine years. Like Bebe, the women’s retailer, some retailers are exiting the brick-and-mortar business altogether and trying to shift to an all-online model.
Too Much Retail Capacity
The United States has 23.5 square feet of retail space per capita, far more than any other country. Canada with 16.4 square feet and Australia with 11.1 square feet are the runners up, according to Morningstar Credit Ratings.
Twenty years ago teen-agers spent their weekends roaming local malls with their friends. Today they are happy to shop online, sharing their purchases with friends via pictures on social media. Working women save time by shopping online for everything from clothing to furniture. The “shop till you drop” mentality that valued a wide selection of stores in one place is gone.
What Happens to Closed Malls?
Most closed malls sit vacant for years as operators try to find another use. However, once they become a magnet for vandalism and other crimes, they are typically demolished. Deadmalls.com chronicles the decline of this great American tradition.
Sometimes the building can be saved and devoted to other uses. For instance, Eastmont Town Center in Oakland, California closed several years ago. The city wanted to preserve the structure and started leasing part of it for government agencies. The mall now houses a substation of the Oakland Police Department, a branch of the Oakland Public Library, a Social Security office, and an Alameda County Medical Center. While these government offices provide necessary services, none of them generates any sales tax revenue.
Does In-store Shopping Have a Future?
While enclosed malls may become extinct, consumers will likely continue shopping at physical stores, especially open-air configurations and smaller units. Across the country, many mails that have been demolished are now being replaced with mixed-use developments. But this often requires zoning changes.
Developments that combine retail, office, and residential are doing well. Food offerings are more upscale than what malls provide and there is an emphasis on healthier fare. Specialty stores rather than large department stores comprise most of the retail space. Having residences in proximity to the retail component provides a stable and steady stream of customers.
The traditional shopping malls that do survive will likely be those that have high-end stores and cater to upper income consumers. Malls are ranked by sales per square foot and, using that metric, there are about 205 “A” level malls in the United States that most likely will thrive. In contrast, 334 “C” and “D” level malls are at high risk of closing, according to real estate research firm Green Street Advisors.