Malls Take on a New Life
Posted: June 25, 2014
Since 2008, 400 of the country’s 1,100 enclosed malls have either closed or been “repurposed.” The mall has been the victim of a declining economy; a growth spurt in online shopping; consumer trends toward local and “authentic” retailers; and a population migration from the suburbs to the cities.
But there is evidence that the demise of the suburban mall is not a done deal. The International Council of Shopping Centers (ICSC), finds that of the $5.1 trillion in total retail sales (including food) in 2013, $2.26 trillion of those sales come from shopping centers.
According to the ICSC, shopping center sales increased in March and April of 2014, almost 3% over 2013, and the National Council of Real Estate Investment Fiduciaries reported recently that the lowest vacancy rate categories in all retail categories in the last quarter of 2013 were located in super-regional malls in the suburbs, whose vacancy rates were both well below national averages. The same group reported that shopping center operating income was up 3.8% in the first quarter of 2014 over the prior year. Some malls are thriving, while others are in such decline, that they’re not even expected to be retail centers in the next five years.
Census Bureau data reveals that urban area growth has been decreasing and suburban populations have been growing. Furthermore, 14 of the largest 20 U.S. cities had population declines or saw their growth rate slow in 2012-2013 compared to the prior annual period. Also, 33 of 51 metropolitan markets had suburbs and exurbs growing faster than their core cities.
Retailers tend to benefit from suburban dwellers who have homes and lawns, seeking the proximity of local shopping. With an improving economy, the shift from city to suburbs is also more likely, as Millennials entering their mid- to late-20s have better job prospects, marry and start families. It follows that new home development and everything that comes with it will drive retail sales.
Plunkett Research notes that the long-term outlook is good, particularly in light of the fact that the middle classes are growing substantially in size and buying power.
But in order to survive, malls must redefine themselves. Rick Caruso, CEO of Caruso Affiliated, takes great pride in his developments in Southern California. His park-like Americana property is crowded with families even in mid-week. At the Americana, people walk their dogs and kids play on the green. Trolleys go by, music is playing and Caruso doesn’t mind that people come just to enjoy the ambiance and not spend money because he knows that when they come back, they will. Storefronts and statues (modeled after those in France) are detailed in appearance, and the atmosphere is entertaining, drawing in more people who stay for a longer period of time than the standard indoor mall.
Malls have to be better at curating the mix of stores and experiences, and they’ll need to figure out what to do with the empty spaces that former big-box stores anchored. As demonstrated by the Americana in California, malls and shopping centers are also places where people gather and hang out, serving the needs of the community. For older people, in particular, malls provide a venue for socializing and exercise. The Census Bureau estimates there will be more than 88 million people over 65 in the U.S. by 2050, more than twice the current number.
This alone is seen as an advantage because it provides malls with its core customer base. A growing economy allows developers to replace outdated shopping centers with fewer but bigger new mega-malls, featuring fine dining, huge theaters and virtual amusement parks. With better execution and entertaining experiences, malls should see revival and success.TAGS: retail, retail trends, retailers,