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Why Malls Are Thriving in an Era of E-commerce

Travis Hoium, The Motley Fool

The mall was supposed to be on a long, slow decline in the U.S. and around the world as online shopping took over. Amazon (NASDAQ: AMZN) continues to grow year after year, and every store under the sun has an online presence, but malls somehow seem busier than ever

Local trends don't necessarily tell the story of a large industry, but we can gain insights from our personal observations. I live not far from the biggest mall in the U.S. -- the Mall of America -- and if the death of malls were apparent we would see it there. But that couldn't be further from the reality on the ground. Construction cranes never seem to leave the mall area as a shopping expansion turns into a hotel, which turns into another retail expansion. And renovations inside show just how vibrant some of the mall industry is in 2019. 

Lobby of a large mall with people walking by.

Image source: Getty Images.

The numbers don't show the death of malls

A recent report from Reis showed that regional mall vacancies were 9.3%, unchanged from a year ago and well down from their peak of 11.1% in Q3 2011. Not only are vacancies not at record highs, effective rents were up 0.4% in the last quarter to $18.73 per square foot. 

Vacancies and rents aren't improving quickly, but they're steady and that's notable at a time when former stalwarts like Sears (NASDAQOTH: SHLDQ), JC Penney (NYSE: JCP), and Macy's (NYSE: M) are shutting down millions of square feet in malls across the country. While anchor locations are struggling, vibrant innovations are taking place inside malls. 

Malls are becoming showrooms

Small retail spots within malls have become a great place for brands to build a presence and reach customers directly. Apple (NASDAQ: AAPL) may be the most notable example of this, bringing its brand, products, and services to consumers within malls around the world. 

Today, walking around a mall is like looking through a branding magazine. Nike, Microsoft, Oakley, Verizon, and even Mercedes-Benz have mall locations, and that wasn't the case a couple of decades ago. They're trying to reach customers directly at these locations, building a brand that will translate to in-person and online sales. Unlike with traditional retailers, the profitability of the store doesn't matter; what matters is building a local presence that enables the company to control the image it presents to the world.  

Another notable trend lately is online brands moving into physical locations. Warby Parker, All Birds, and Peloton are three of the online names building a physical presence lately. A retail shop is more about brand awareness and marketing than profit, but as with bigger brands, the physical location is little more than a showroom, not what will ultimately drives profitability. 

The mall experience will continue to change

The death of retail and malls in general has been predicted for more than a decade, but in reality, malls are a great place to reach customers. A mall is a central location where thousands of customers can be exposed to a brand and experience products in person. That's valuable to lots of retailers, and the fact that we're seeing online retailers become tenants at malls shows that the internet isn't going to kill the mall after all. 

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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool's board of directors. Travis Hoium owns shares of Apple and Verizon Communications. The Motley Fool owns shares of and recommends Amazon, Apple, Microsoft, and Nike. The Motley Fool has the following options: long January 2020 $150 calls on Apple and short January 2020 $155 calls on Apple. The Motley Fool recommends Verizon Communications. The Motley Fool has a disclosure policy.