Some malls are dying, but not all. Despite scary headlines about the demise of malls, TV and internet shopping, urbanization, and the attitudes of younger consumers, some malls are prospering. “Simon, GGP and Taubman are owners of the highest quality mall REIT portfolios, reported a particularly positive fourth quarter [in 2016]… occupancy continues to exceed 95% across these high-quality portfolios.” REIT analysts expect the loss of retail sales to e-commerce will grow to 20%, although some fear it may reach 50% eventually.
Between 1956 and 2005, about 1,500 malls were built in the US. Of the 1,300 shopping malls still operating in the US, 310 are at high risk of losing an anchor tenant. A mall’s viability is closely related to its quality. Currently, there are 334 malls rated C+, C, C-, or D, and they are at high risk of closing. Credit Suisse forecasts that 20-25% of malls will close in the next 5 years. That leaves about 1,000 malls which are relatively secure, clearly not all malls are dying.
Malls die when they cease meeting consumer’s needs and consumer needs are not uniform over time. In the 60s and 70s, malls represented the widest accumulation of variety that consumers could practically experience. If you wanted to see what was new, fashionable or affordable, a visit to the shopping mall was the right move. Now 50 years later, consumers can comparison shop the widest variety through the internet. Malls provide a second-best experience of variety, but malls still can be useful places verify the fit of apparel fit or eliminate delivery delay, and with some thought and effort they can be pleasant experiences.
Consumer tastes differ between age groups. The Boomer generation wanted merchandise that was generic or prestigious but commercially made. Most mall stores reflect that cultural expectation. In contrast, Millennials and Gen Z expect locally-sourced, ethically made, environmentally friendly, experiential, authentic and artisanal products. The differing cultures are not typically satisfied in the same store, and thus a mall store has appeal to just one group or the other.
A community of wealthy Boomers may support conventional mall stores, even exclusive stores. This can explain why some higher quality malls prosper, especially if they incorporate experiential elements (e.g. a running brook, robust tropical gardens, live musicians, natural lighting). A community of Millennials and Gen Z consumers are far less likely to provide the foot traffic and revenues that regular mall stores require, reducing revenues for a store that is geographically dependent on their community. The challenge for mall stores is worse for low end malls.
While the Millennial and Gen Z generations may not favor many of today’s malls, retailers must adapt to their tastes, because “Millennials make up $1.3 trillion in spending in the U.S. and that number will grow … By 2025, millennials will account for 75 percent of the workforce.” To accommodate the tastes of younger consumers, Smallbiztrends suggests stores should incorporate five themes: “Gender Leveling” – no differentiation in toys and apparel for boys and girls; “Essentialism” – fewer but higher quality products; SnapChat Effect – frequent new products and stimuli; Local sourcing – from independent businesses, not global chains; and Frictionless Purchasing – fast, easy, and smartphone is accepted.
E-commerce can be readily shaped to comply with four of the five themes. Local sourcing may be challenging, but feasible. Inclusion of a fast, easy and integrated e-commerce channel with the brick and mortar experience should extend the life expectancy of mall stores, and most importantly, it will meet consumers’ needs.