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Not dead yet: The American shopping mall is changing, not going away

Jeff Macke

Last Friday sandwich chain Quiznos filed for bankruptcy protection citing high debt loads and heavy completion. Coming just days after a similar filing from pizza chain Sbarro, Quiznos’ bankruptcy was the second half of a one-two gut punch for shopping malls at a time when they’ve never been more vulnerable. A decade ago there were more than 1,100 enclosed shopping malls in the U.S. Since then more than 400 have  either been “re-purposed” or closed outright. No new malls have been completed since at least 2009.

The trend has become so pronounced it has its own website, DeadMalls.com where shoppers and developers swap stories and mourn the demise of their childhood haunts.

Earlier this year Starbucks’ CEO Howard Schultz told analysts that the drop in mall foot-traffic last year marked a permanent shift in consumer behavior; a simple strategic shift for his company but a death sentence for malls. Nimble retailers can redirect their marketing energy to on-line sales but shopping malls raison d’etre is to act as gathering places. Moving to the Internet isn’t an option.

It’s no surprise that malls are facing a life-threatening shift in consumer tastes but their decline seems to have gone from chronic to acute in the last few months. While destination attractions like Minnesota’s Mall of America with 520 stores, a theme park, wedding chapel, its own zip code and more than 4.2 million feet of real estate continue to thrive, b-list locations are ghost towns.

E-commerce didn’t kill the shopping mall

Contrary to popular belief, online shopping didn’t kill malls. As of the fourth quarter of 2013 only 6% of all U.S. retail sales were done online. Sales are migrating away from brick and mortar stores but the demise of lesser malls is due to a confluence of consolidation in the retail industry as a whole, the death of the smaller specialty store “hang-outs” and the rise of retail Death Stars like the Mall of America  or the Mall at Short Hills.

Retail consolidation

Malls thrive on big box department stores acting as anchor tenants. Twenty-five years ago chains like Bloomingdales, Marshall Fields, Hudson's, Dayton's and Macy’s (M) would fight for a prime corner. Today all five chains are part of Macy’s. Donaldson’s, Mervyn’s and Gimbel's are gone to bankruptcy. Left standing are Macy’s, Nordstrom (JWN), Neiman-Marcus and Saks at the higher end with weaklings like Sears (SHLD) and J.C. Penney (JCP) struggling to stay alive.

With fewer companies bidding for prime locations mall rents have collapsed and vacancies increased. Quite understandably Macy’s doesn’t have any interest in having its brands compete against each other at a single location.

Dead or dying “hang-out” stores

As Aaron Task and I discuss in the attached video, malls used to be places to hang out as much as shop. The Internet actually legitimately killed bookstores, arcades and record stores and the days of parents letting their kids roam freely around the mall are long gone. With the food court emptying out thanks to the bankruptcies of greasy spoons like Sbarro, that leaves movie theaters as the only legacy of days when kids would spend a full day just roaming from store to store.

Higher Expectations

When Southdale became the first modern enclosed mall mid-50s it was a groundbreaking social experiment. Located just outside of Minneapolis in a town called Edina, the opening of Southdale was a major media event. Life magazine called it the “splashiest center in the U.S.” and marveled at the mall's “goldfish pond, birds, art and 10 acres of stores all . . . under one Minnesota roof.” I personally once spent an entire day in Southdale just looking at birds while my mother shopped.

Today it takes something more along the lines of an Imax theater and indoor roller coasters to get a teenager’s attention. The economics of having multiple such destinations within driving distance of one another simply don’t work.

The Future

Malls as a whole aren’t dying, but the country no longer needs several thousand of them. From roughly 1,100 shopping malls today there will likely be somewhere around half that number within the next 20 years. Of the ones that are closed, some will indeed become ghost malls but most will be converted into more useful public spaces to serve the communities that have been built up around them over the last 50 years.

That’s a much different picture but it’s not the same as an outright disappearance of centralized markets. What the doomsayers don’t understand is that malls have never been entirely about shopping. They are about interacting with other living human beings. Victor Gruen, the man who created Southdale, wasn’t a merchant. He was a sociologist. Beyond bringing Minnesotans in out of the cold Gruen was trying to create a centralized community to counter the stifling banality of American suburbs.

What Gruen understood was that humans have been gathering in centralized meeting areas since at least 10th century BC. Americans aren’t becoming shut-ins just because Amazon.com allows them to shop at home.

Ghost malls are depressing, but vibrant shopping centers serve community needs well beyond concentrated shopping. For the elderly in particular malls are a place to gather socially and even get some exercise. The Census Bureau estimates there will be more than 88 million people over 65 in America by 2050, more than twice the current figure.

That alone gives modern malls a core customer base. Add to that the economies of scale allowing developers to replace antiquated shopping centers with Mega Malls featuring fine dining, monster theaters and virtual amusement parks and it becomes clear that the future of malls looks very much like retail itself: fewer locations, better execution and survival of the fittest. It’s hardly cause for mourning.