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[13 comments]

Is the suburban mall headed for a rebirth?

June 4, 2014

Through a special arrangement, presented here for discussion is a summary of a current article from Consensus Advisors, a boutique investment and advisory firm specializing in the retail industry.

Among the mega-trends to emerge from the financial crisis is the decline of the suburban shopping mall. Yahoo Finance's Breakout reported recently that over 400 of the nation's 1,100 enclosed regional malls have either been "repurposed" or closed outright and no new malls have been completed since 2009.

Suburban shopping malls, it seems, have become victims of the convergence of trends: consumer austerity, the internet's growth, a push towards local and authentic shopping, and a population migration to urban centers.

But, to misquote Mark Twain, the reports of the death of the suburban mall may have been greatly exaggerated. According to data from Plunkett Research and the International Council of Shopping Centers, shopping centers made up nearly half of all retail sales (including food) in 2013 and have generated solid growth this spring despite the chilly weather. The National Council of Real Estate Investment Fiduciaries shows vacancy rates at both power centers and super-regional sitting well below national averages.

To be fair, some regional malls are generating all-time high sales volumes, while others (by some estimates, one-third of all such malls) are expected to have to close in the next five years.

On a particularly encouraging note, however, new Census Bureau data is showing that the growth rate of people moving to the urban core in the U.S. is declining and the growth rate of suburbs and exurbs (i.e., areas beyond suburbs but within the same metro area designation) is once again accelerating. According to a recent Wall Street Journal article profiling the trend, 31 of 51 metropolitan markets had suburbs and exurbs growing faster than their core cities.

A population shift back to bigger homes with larger closets, more rooms and yards is good news for retailers. Nearly all categories at retail benefit from people having more space and living father apart from one another.

Can we count on increased suburbanization as a trend? At the risk of obviousness and oversimplification, Americans migrate from cities to suburbs/exurbs when they need and can afford more space. Often, this happens when building a family. While family development was deferred by the Millennial Generation during the financial crisis, as job prospects for its student-loan-laden members improve, it may be logical to assume the U.S. will experience a growth in family creation and subsequent suburb shift. With this will come new home development and all of the accompanying nesting that drives retail purchases.

If the Census Bureau data is indeed a trend, it could be a strong reason to be bullish about the long-term prospects of the industry. Now, if we could only get some favorable weather patterns.

Discussion Questions:

Are suburban malls likely to benefit in the years ahead from a Millennial-driven suburbanization trend? What other factors may help them regain ground?

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Instant Poll:

Do you see the position of suburban malls strengthening or weakening over the next decade?

Comments:

First, there is mixed data about the move toward the suburbs vs. the move back to the city. For every piece of reporting about suburban growth (like the Wall Street Journal article), there is evidence to the contrary. I don't think it's clear what the long-term behavior of Millennials will be.

The bigger issue, aside from demographics, is the challenging position of many mall anchors. Sears and JCP (both in varying degrees of difficulty) anchor many malls around the country, and - outside of Macy's - there is not a strong national department store able to be a productive mall tenant around the country. Adding new tenants like restaurants and Forever 21 may help, but it's not a systemic solution.

In many markets, "the rich get richer"...here in Milwaukee, for example, Nordstrom is (finally) adding a store to the dominant regional mall in the area while a second-tier mall like Brookfield Square struggles with its tenant mix because of weak anchors. Unless the long-term decline of the anchor department store suddenly reverses (and there is no evidence of it), mall developers have plenty of challenges on their hands.

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Dick Seesel, Principal, Retailing In Focus LLC

There's great risk in generalizations like these. We have seen and will continue to see great disparity in the performance of A malls vs. the rest. This has little if anything to do with Millennials but rather is reflective of the attractiveness of the overall store mix, including anchors, to shoppers across generations.

As ailing department stores JCP and Sears shutter locations and others like Macy's rationalize the store base, the opportunity for malls to repurpose that real estate for concepts (grocery, foodservices, etc.) that increase traffic and dwell time is one that will keep the format relevant going forward.

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Kelly Tackett, Research Director, Planet Retail

In the heyday of shopping malls, the was a very simple premise: "Build it and they will come." That worked because there was no internet ... the mall was the one place that consumers go to see and purchase a wide array of products.

To paraphrase words of Charles Darwin: "It's not the largest or strongest that will survive, it is those that are most adaptive to change."

Beyond population growth patterns, malls must create an experience that consumers value. They cannot merely remain a collection of stores under a the same roof. Many malls look like photocopies ... same format, same stores.

Omni-channel is the new normal for consumers. Successful malls will not only differentiate based on types of stores and services, they will incorporate omni-channel components such as mall based apps, centralized pickup capabilities, and buy in the mall and ship anywhere in the world.

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Chris Petersen, PhD, President, Integrated Marketing Solutions

This is the first I have read that there is a new trend in sub-urbanization. Both the data and the anecdotes suggest quite the opposite in New York City. Where once families moved out of the city when their children hit school age, now they are staying in. I even know of a couple of families that moved out when their kids hit that age and now have moved back, kids and all.

With regard to what factors might help malls regain ground, let's try to answer a simple question...why go to the mall? And, if your answer can be fulfilled without going to the mall, which in most cases I believe it can, then the malls will continue to be in trouble.

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Gene Detroyer, Professor, Independent

In the Seattle area we have some malls that are thriving and others on decline. To confirm what Dick Seesel said, it depends largely on the anchors. Those with Macy's and Nordstrom are doing well. Those with weaker anchors like Sears are declining.

It's hard to say what the migration patterns will be in the future. Some of it may have to do with immigration as much as what the Millennials may do. However, I wouldn't count the suburbs out. Not everyone is suited to live in an urban area.

'RetailRetell'

I wouldn't recommend basing future planning on an observation like this.

The only thing limiting the growth of urban core is sheer availability. Nearly every square inch of DC is experiencing in-fill development, and the addition of scaled-to-fit Targets and Walmarts. Given the impending loss of even more anchor stores in the suburbs, it's iffy at best to assume that traditional malls are staging a comeback.

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Cathy Hotka, Principal, Cathy Hotka & Associates

Malls are like any other retail outlet. Their ability to not only survive, but thrive is dependent on the experience they provide shoppers who choose to shop there versus other physical or online retailers. Gone are the days when price/product were enough to woo and keep the consumer.

Today's consumers are looking for more and want the entire shopping experience to be enjoyable. Smart mall owners should really dig deeply into customer journey mapping, touchpoint studies and understand what consumers really want from their shopping experience. Delivering on this will ensure survival and even growth. All else will fail regardless of economic trends showing consumers need to purchase more goods.

Gary Lee, President & CEO, InReality

 
15

Some of the statistics in this article may be a bit misleading in that the findings from the ICSC includes shopping centers that are actually external-entrance "strip malls." However, I do believe that enclosed malls are definitely doing well in specific regions of the country. In Southern California, for example, mall parking lots are at capacity on a daily basis.

I think merchants and brands can lure shoppers to malls via social channel interaction as one effort. Holding events in-store has always been a perennial draw.

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Ralph Jacobson, Global Consumer Products Industry Marketing Executive, IBM

With respect to the Millennials setting up housekeeping and saving suburban malls, I have not seen much (if any) data that "job prospects for its student-debt-laden members" are improving or show signs of improving in any appreciable way. There is much more retail space existing in suburbia than what can possibly be filled with thriving businesses. When shopping brick and mortar as apposed to online, mature shoppers - middle aged and boomers - increasingly prefer in and out venues with smaller square footage to walk around in and smaller, safer parking lots and garages.

The once mighty and proud mall concept is outdated and out of step with today's population and economy.

'Liatt'

Urban versus suburban trends aside, which have yet to be sorted out for Millennial preference, much will also depend on the survival and related reinvention of anchors. Without strong and relevant anchors (which still won't guarantee survival), the mall becomes even less important in the age of endless variety on the internet.

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Brian Numainville, Principal, The Retail Feedback Group

The economy is improving and investors are betting suburban malls will be a good investment opportunity and as a result, I've been pleased to see some very creative suburban mall projects in all stages of new construction or redevelopment. Clearly, Millennial migration to the 'burbs is a factor here.

These malls can certainly prove their worth, if they are well designed, offer what we have come to expect in terms of amenities (i.e. valet parking, convenient hours, guest services, ATMs, WiFi, etc.), and a good mix of restaurants and services.

Top tier retailers as well as emerging brand and local brand names are important, because studies show that Millennials have a reputation for brand affinity and will flock to the stores they like, and share their great times and products they love through social media and word of mouth.

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Karen S. Herman, Founder & Design Director, Gustie Creative LLC

Strip shopping centers which include a Kohl's, Ross, Marshall's, or TJMaxx all seem to be thriving and Upscale malls, especially the newer outside-inside developments that are copying Oakbrook in the Chicago area seem to be doing well. These malls often include Nordstrom, a "finer" Macy's, and possible others - Neiman's, Lord and Taylor, Saks, VonMaur, possibly a Dillard's, etc. These malls also seem to be doing well. Consistent with the retail industry itself, the top and bottom are doing okay, but the middle - well, wow!

Wherever I travel, the traditional malls with JCP, Sears, Macy's and possibly a few other remaining nameplates around the country, all seem to be falling apart and failing (Macy's seems to be the "hanging-on" oddity), with LITTLE exception, in my observation. If (when?) JCP and Sears fail, the fate of these malls seems even worse. These malls seem bland and stale. Most are clean and well lit and pleasant, but have no sense of being, or place.

There needs to be a revitalization of reason to go to these places; the "show" must be returned to the mix. If these retailers can become "merchants" and "put on the show" they may be able to survive. That is a BIG task. Retailers haven't been vibrant in that fashion for several decades. (This goes back to the time of more regional and local department stores.) The "show" is included, in my opinion, as part of the over-all adaptation, and change necessary. I think the situation has also worsened given the recent difficulties of JCP. I think there was a FURTHER exodus of shoppers from the middle level mall and that those people discovered other options in relation to their discontent of changes at JCP.

In the later years also, the "mall" became the department store. It is incumbent on the mall acting as a unit, as the single store used to. This is hard due to natural competition between retailers. Mall management needs to step up and resurrect themselves. This is a really big task that may not be possible. I am not certain that they would even understand what needs to be done.

Given these changes and observations, I think the eventual demise of these middle level malls is the natural outcome given the ongoing changes of the industry as a whole. Some may be able to survive with addition of Target, Kohl's, even Walmart, if these stores would even WANT to locate there, which I think is a big no. (Kohl's and Walmart build, and Target has located in mixed use locations in urban centers, but at many of these malls they are already nearby - or actually already in the "mall grounds," in their store, in a few locations.) Grocery stores might also be a possibility, but would likely involve a tear-down and rebuild - and it likely makes more sense for grocers to simply build their store on their own.

The middle level mall is on the same path as the middle level store.

William Passodelis, associate, ML Co.

The success of malls and shopping centers is no different than what their tenants need: the ability to attract and retain the right mix of customers. For the shopping centers, that means the right retail tenants, as that's what attracts customers. Millennials aren't simply defined by age and demographics, but rather lifestyle and other behavioral attributes. Millennials still shop in stores - as well as all other channels - and that's still the bastion of shopping centers.

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Phil Rubin, CEO, rDialogue

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