Source: Simon promotional video
Is suburban retail (malls, too) primed for a comeback?
Simon Property Group CEO David Simon predicted a “major comeback” for suburban retail coming out of the pandemic on his company’s fourth-quarter conference call last week.
“With all of the urbanization that was predicted two or three years ago, the question was, ‘Why are the suburbs going to exist if everybody is going to live in an urban environment?’,” said Mr. Simon. “I’m telling you, the suburbs are going to be hot. And our quality real estate is going to be where the action is.”
Numerous articles have detailed how urbanites are abandoning congested cities for the suburbs in part to ride out the pandemic.
Longer term, suburban living is expected to be driven by the shift toward remote working.
A recent New York Times article also detailed how former New York City commuters now working from homes were committing to supporting local businesses as they spend more time in communities where they live.
Nonetheless, remote working appears to have also accelerated the trend toward living in second-tier cities that provide a lower cost of living and similar cultural and social draws of bigger cities. Temporarily, local businesses have been the beneficiaries of money diverted from traveling and other entertainment.
Mr. Simon appears to be expecting more of a bump for his suburban luxury malls rather than a surge amid many forecasts calling for continuing challenges for malls.
The trend toward mixed-use developments “will be accelerated” to help support retail traffic, Mr. Simon said. The mall operator is also in discussions with traditional strip mall chains, including Kohl’s and Dick’s, about partnering on properties.
He was encouraged by improved traffic in Texas and Florida properties as COVID restrictions have eased.
Simon’s occupancy rate at 2020’s close was 91.3 percent, down from 95.1 percent a year ago. Mr. Simon said, “We hope to be able to certainly increase our occupancy for 2021, and it’s going to take some time to, obviously, get back to where we were in ’19.”
- Simon Property Group Reports Fourth Quarter and Full Year 2020 Results – Simon Property Group
- Simon Property Group, Inc.’s (SPG) CEO David Simon on Q4 2020 Results – Earnings Call Transcript – Simon Property Group/Seeking Alpha
- Why Some Suburban Businesses Are Thriving During the Pandemic – The New York Times
- Why Renters Are Flocking to the Suburbs – The Wall Street Journal
- Housing Prices Are Booming in U.S. Cities—Just Not San Francisco or New York – Bloomberg
Discussion Questions
DISCUSSION QUESTIONS: Will the shift toward remote working, the reduced appeal of urban living or some other factor enhance the suburban retail opportunity, including malls? Do you expect retailing in the suburbs to receive a minimal or major boost coming out of the pandemic?
Poll
BrainTrust
David Adelman
Founder, The Adelman Group
Karen S. Herman
CEO and Disruptive Retail Specialist, Gustie Creative LLC
Last year retail sales growth in the suburbs was stronger than growth in urban areas. Two main factors contributed to the differential: people migrating out of cities and people commuting less so spending more closer to home. Will these trends persist into 2021? Most likely, although the gap will close once the pandemic is over.
However I am skeptical that this will save all suburban malls. Stronger properties may benefit, but weaker ones will continue to decline. Even with sales growth, there is still too much bad space in many suburban locations and, over time, that needs to be redeveloped or transformed into other uses.
With more people working remotely for the past year and more companies becoming open to offering employees the flexibility to work remotely in the future, it makes the lower living costs of suburbs more attractive than urban living. This may be a long-term trend. However with more people living closer to malls, it doesn’t mean there will be a direct boost to mall traffic and sales. The other big trend is the shift to online shopping that may also become a long-term habit for shoppers. Malls were struggling before the pandemic and they will continue to need to be creative to attract shoppers.
I believe we must clarify the question. Will malls do better post-pandemic than during the pandemic? Absolutely! Post-pandemic, will malls turn around the decline that has continued for over a decade? Absolutely not.
The decline of the pre-pandemic years will continue, continue, continue. The reasons for the malls’ decline are largely changes in lifestyle, shopping alternatives and shopping no longer being “entertainment” as the malls were.
Mall shopping was always “experiential.” But the definition of experiential has changed significantly and the bar has been raised in the last couple of years. Mall shopping was and will continue to be be a fun, social event. Having said that we still have too many stores and too many malls. That shake out will continue for some time as mixed use options are sorted out. We are still in the middle of a very messy evolution in the definition of the mall, but the shift to suburban living is certainly good news for many locations.
The move to the suburbs, especially by younger generations, may be a temporary development. As we return to normality, WFH notwithstanding, some demographic groups will want to return to where the concentration of their peers is and where the action is. As to older generations, they may enjoy more of the quiet and peacefulness without the police, fire and ambulance sirens which fill the urban day. On the other hand, other seniors are downsizing or shedding the responsibilities of home ownership in favor of the convenience of walking out the building’s door to all the stores and services.
Bob, this is in the back of my mind as well. For now, it works for younger families. But I suspect a few years of eating at the same chain restaurant and shopping in the same Big Box will get old. They’ll miss the connection with peers and neighborhoods. And as an older adult I am all in for selling the big house and moving to higher density living if it means I don’t have shovel snow and can have a few dining and shopping options in walking distance.
It’s always about big city retail; in the past years suburbia has been invisible or, better yet, ignored as not important enough to focus on. Yet those of us who live in the suburbs have never really seen where we live as second tier or even needing a come back. Suburban and city living are different but it doesn’t mean that one is better than the other. Sexy new stores generally open in big cities, and urban areas are home to most flagship stores, but the local retail scene has benefits too, that’s why retailers like Macy’s have or plan to open small format stores in suburban communities.
I live in a town of 32,000 people that retail-wise doesn’t feel like a small town. Our retail corridor has a town center, indie retail, and strip centers that have every big and chain retailer you can think of within a five mile radius. David Simon is right — the suburbs are hot.
Suburban retail and malls have always been about a lot more than just buying stuff. They have often been the community hub of social experiences. As more communities move back to suburban neighborhoods, I expect the suburban retail scene to innovate and modernize with new social and shopping experiences. Suburban retail will not be the same as before, but they will boom again as new communities grow once more.
Like so much of what has been going on in retail in recent years–and has been clearly accelerated by the COVID-19 crisis–the outcomes we are seeing are highly bifurcated and the gaps between the winners and losers are growing only more pronounced. The very best malls (most of the so-called A malls) will continue to be successful without wholesale changes, and those in the suburbs will get a lift, albeit I believe a quite modest one. The unremarkable rest will continue to be hit by the forces that have been driving declines for two decades (the shift to off-mall discount mass merchandisers, off-price retail, online shopping and more, the collapse of the moderate department store sector, etc.). If they are in the suburbs they might see a bit of a rebound from the emergence from COVID-19 restrictions, but most of them will need to be massively repurposed (or bull-dozed) to achieve any longer-term success.
I completely agree Steve. The winners will continue to win as leaders and the laggards will continue their slow death from irrelevance. In my mind, this applies both to the shopping centers (A-malls) and the merchants that lie (rent) within. The challenge ultimately lies in whether there are enough A-retailers to provide enough occupancy to the A-malls. I’m not sure there are, unless more online merchants expand to physical retail. If that happens, it’s unlikely they will be willing to pay the rent that the David Simons expect, especially in larger centers in the suburbs.
This is a very optimistic view of the retail mall industry. Is there light at the end of the tunnel? The pandemic changed the way companies operate and people live. Some of this is permanent. Is that change going to get foot traffic back to the malls? There are good points in the article that might lead to one saying yes. However we must remember, the problems with retail malls were happening long before the pandemic. The last year accelerated the demise of some retailers. People are still using online retailers for many of their shopping needs – now more than ever. As we come out of the pandemic, we will see people heading back to the malls. Even if they do come back at pre-pandemic levels, is it enough to reverse the problematic trend that was plaguing the industry for years leading up to the pandemic?
“Optimistic” is the right descriptor for this forecast…
Yeah, I’m not buying it. Yes, malls will see a short-term resurgence as people go do the things they haven’t been able to do for over a year. But that will be short-lived. If malls are banking on urban flight to save their bacon, then they’re going to remain just as cooked as they were before the pandemic. Malls need a new value proposition for the shopper, beyond just “come see all our stuff.”
My sentiments as well.
Simon Property Group has propped up its vacancy rate figures by purchasing many of its failing tenants, such as Brook Brother and Forever 21. Creating mixed-use at malls including restaurants, grocery and entertainment may perhaps save some malls.
However many employers will require their employees to return to the city once COVID-19 resolves itself. There is still no substitute for in-person, face-to-face interaction.
Suburban malls will definitely get a boost once the pandemic subsides. Still, I fear it will be short-lived unless developers provide something unique and exciting to customers in the coming years.
In addition to creating mixed-use, mall operators must attract local retailers to join chain stores to develop a community sense. If not, I’m afraid the selection online comparatively will be too hard to compete against.
I don’t agree at all. The death of the mall has more to do with well documented struggles of the traditional anchors and changing shopping patterns. Centers that have entertainment options as part of their value proposition and are destinations are doing fine for the moment. As for the traditional “come and park a mile away and walk through shops and a food court and maybe see a movie” malls — that’s a stale model that will not survive.
While A malls and those that have been upgraded to attractive mixed-use properties may thrive, those still populated with undifferentiated retailers will fail. The future is brighter for indie and local retailers in places where urbanites are relocating.
I wouldn’t expect David Simon to portray a negative forecast when his company’s future is tied to his messaging.
2020 is a non-year. It’s such an exception to the prior and future reality that it needs to be assigned an asterisk and removed from analysis.
Cities and suburbs will adjust a little based on the pandemic’s influence, but there is not/will not be more than a minor consumer distribution change and retail stores and especially malls will continue to deal with the pre-pandemic retail to digital changes that were in play.
The pandemic, protests, boarded-up downtown [urban] stores alongside restaurants out of business, highlighted by the loss of small urban, local retail businesses, now deceased. Hmm… Where does one feel safe IF they want to ditch their computer for a real-life shopping experience? This year in 2021? And how about 2022, only 10 months away? I believe Mr. Simon has a realistic view into the minds and moods of shoppers and shopping in the current environment we are all living within.
Once people feel safe to go out again (through vaccinations, herd immunity, etc.) we will likely see a huge surge in mall and store traffic. This will be due to pent up demand and need for experiences. Eventually when things get back to normal, this will subside and unless malls and stores offer something new and exciting to shoppers, store traffic will continue to decline.
We are seeing similar patterns in the U.K. where the change to home working or at least part-time home working looks like it will extend beyond the end of lockdown. People are moving out of the major urban areas and into smaller communities, towns and villages where property prices are lower. This, coupled with the care for that community and supporting local business, will make those smaller local shopping outlets more appealing. As people start to go out and shop more, this will only get stronger. While a lot of people have become more used to and happy with online shopping, after the pandemic online will fall back from its current very high position though not back to its level before the pandemic.
The challenge for all shopping centers is to regenerate the excitement and theater necessary to draw consumers back out to the shops and retail only is unlikely to achieve that. The mixed mall approach should have more success and given that there is a buildup of consumer demand, particularly in U.K. and other parts of Europe that have been locked down for longer, consumers just want to get out of the house and go shopping. This is a huge opportunity for retail but they have to grab it fast. If they fail with poor availability, boring assortments or outdated stock, the consumer will just as quickly switch off and go back to the online experience they have become used to.
The Simon Property Group may do fine, because it is concentrated in A locations and is aggressively pursuing non-retail tenants to maintain high occupancy levels and revenue. However “malls” in general will continue their downward slide. And don’t expect “experiential retailing” to be a savior. The biggest, most farcical example of “experiential retailing,” the American Dream Mall, was the centerpiece of a recent WSJ article titled, “Malls Spent Billions on Theme Parks to Woo Shoppers. It Made Matters Worse.”
With the mass exodus from/temporary shutdowns of major city corporate offices, the suburban areas have been revitalized, and consumers are shopping locally at an increasing rate. While the downtown shopping areas have once again become the center of communities, suburban malls should quickly capitalize on this opportunity as well.
We have heard the apocalyptic narratives about the shopping malls, and unless they start to address the changing consumer preferences, the recovery curve will be a long one. The anchor department stores have experienced their own disruptions and store closures.
When the shopping malls attract the right mix of experience, hot DTC brands, restaurants, services, and revitalized department stores that reflect the needs of the modern customer, then the suburban shopping malls have a fighting chance in a post-pandemic world.
There has been an extensive shift to remote working since the pandemic began. As the pandemic subsides, many of these workers will continue to work from home. And with the unstable nature of several cities like New York, Seattle and Portland, many residents are moving to the suburbs to get out of the city environment. A personal friend’s three children, who all lived with their families in New York City, have moved to the suburbs or small towns in the past six months. As people move, they desire to make purchases closer to where they live which will drive suburban mall traffic up. I think this will be a major boost to retailing in the suburbs coming out of the pandemic.
Retail traffic will return post-pandemic. But how much business increases depends on one’s location contrasted with need vs desire.
In certain urban (and suburban) spots where shopping is a unique and attractive “experience,” the chances for a greater comeback far outweigh those places where shopping was merely undertaken for the sake of shopping (i.e. as a way to alleviate basic human boredom).
Generally speaking, the creators of malls understood and knew the advantage of further exploiting this latter mode — by espousing theirs as truly experiential destinations. Regardless whether they were (or were not) actually interesting places to visit (and shop), this led to malls around the country being co-modified to the point where there was little differentiating time spent in one over any other.
Which, of course, was still the point: of democratizing commerce nationally/regionally at the same time turning the droves to near-thoughtless consumers of goods they quite often did not need — but bought anyway. (And let’s expect business leaders to continue pushing for this way.)
Meanwhile during “sheltering,” many people took stock of what material goods they had, what of those they could (and could not) do without, what they believed they needed, and what they desired (and, when the time returned, might buy just for the sake of it).
So, as we move out of lockdowns, it will be interesting to witness how these two rather opposing forces will come together — in a collision or co-mingling — and in how they may dismantle what stood before and what might deem must be rebuilt or built totally anew.
The malls are only as good as the stores within the malls … and the stores in my local Simon Mall look anemic at best. Even Macy’s is full of more empty spaces than I’ve ever seen there, and poorly stocked.
The Simon Mall in my area has cut its hours, now closing at 7 PM most nights. The mall is absolutely packed on the weekends but it is a ghost town on weekdays. At least 30% of the “food court” is vacant of tenants. Looking at people, they aren’t buying a whole lot. People have a bag here and there but the days of seeing people with multiple very full bags of product are over.
As far as pent up demand from when people weren’t going out or the mall were closed? Websites handled that.
The future of the mall is to close it, demolish it, and build apartments and limited shops/restaurants in its place.
Of course he did … but should we believe him? Short answer: “no”; longer answer “not for any meaningful length of time.” Right now there are two competing narratives. One is a a brave new world of WFH, which will destroy the existing office market (and the retail and infrastructure that supports it). The other is back to “same old, same old.” Unfortunately neither of these is a place in which malls figure prominently. So either we’ll go back to the old world of growing online presence in retail, or a new one of online dominance … in everything.
The consumer’s need for product discovery and human interaction will be the main drivers of a significant boost in offline shopping as the “new normal” settles in. The question is, will these shoppers continue to support the local main street retailers that they connected with throughout the pandemic, or will these shoppers return to the malls? I’m betting that mall traffic stays light to moderate until the holiday season comes around.
Living in the DFW area has given me a very different perspective of population and demographic changes. We added more than a million people alone in the last decade and expect a million more in the upcoming decade. The net migration out of big population centers in the East and West for a shorter commute, cheaper real estate, cleaner air, better schools and lower taxes to DFW is also driving a population swell in many second cities in the US and their suburbs.
There is some truth that the population is getting redistributed, a trend that accelerated during COVID, and that will help prop up the suburbs. Whether that’s enough to keep the malls bustling given the shift of customer shopping preference to online is another matter. But Simon Properties has a point on the opportunity. They do have a path with mixed use development and also using vacated space as fulfillment centers for local online demand. The suburban malls of today won’t survive, but we will definitely see something different and experiential in the future.
Certainly the shift towards remote working has had, and will continue to have, an impact on urban vs suburban living. Urban cities are taking the brunt of this hit while suburban areas are reaping the benefits, including retail stores. If what we expect about consumer behavior to hold true in that behaviors formed during the pandemic will likely stick around after the pandemic, then the suburban landscape could be changed post-pandemic–from a geography and real estate perspective. However, once the pandemic is over and urban-turned-suburban dwellers start to realize cost saving benefits, I’d venture that travel and tourism will benefit faster than the local malls.
Shopping malls that become not just a place to buy, but a destination offering activities are a viable path for suburban shopping malls to sustain their presence in the suburbs. Interestingly, in Brazil, one of the largest mall chains pivoted to a mixed-use — mall and fulfillment center space where items or even food is delivered closer to the customer, this too could be a viable path for a comeback. While remote working may offer respite in the sense that people won’t need to be as urbanized, it doesn’t negate the undeniable convenience of e-commerce and big pivots will be required for a true turnaround.
The social dynamic of having retail restaurants and other entertainment found in urban settings would still be attractive post-Covid over the less complex settings found in a suburban setting. The change this article is anticipating would occur over years with much intentional and guiding design of the shopping experience and lifestyle of a given area.