Can American Malls Make a Comeback?

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The American mall was once one of the bedrocks of leisure time. People could go shopping with friends, enjoy dining, and catch a movie. However, once online shopping came into play, American malls began a slow and steady decline. Rather than shopping in person, consumers began shopping from the comfort of their own home via the internet. It was convenient, clothes could come to you, and you could mail back something if it wasn’t what you expected.

As America’s economy took a hit, particularly during the 2008 recession, people had less discretionary income to shop for clothes and other discretionary items. Once the economy rebounded, the incremental shift to online shopping began to have more of an effect. With the disastrous effects of the COVID-19 pandemic and many major American cities on lockdown, there was more of a shift to online shopping Though many brick-and-mortar stores and malls have reopened, customers are still preferring to shop online for health and safety reasons.

So, where does that leave the American mall? Malls are stuck asking themselves how, and if, they can manage to make a comeback.

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For starters, mall owners will have to reevaluate what to do about tenants and mall anchors. The number of American retailers who have recently filed bankruptcy is staggering. Modell’s Sporting Goods, Neiman Marcus, J. Crew, J.C. Penney, Brooks Brothers True Religion, GNC Holdings, Lucky Brand, and Ascena Retail Group (the parent company of Lane Bryant and Ann Taylor) have all filed bankruptcies this year and have shuttered many of their stores. This has of course reduced the number of malls tenants, and with months of shutdowns, tenants also haven’t paid rent, leaving mall owners cash strapped.

What should have been the cornerstone of the next phase of the American mall has found its dreams deferred, and that is a quite literal assessment. The supersized American Dream Mall in East Rutherford, NJ was seen as the next frontier for the American mall. The American Dream mall was in development for a decade and was a 5-billion-dollar project.  The mall was set to boast entertainment offerings, which included an indoor water park, an amusement park, an NHL regulation size ice rink, an indoor snow park, with around 450 retailers were set to open by spring 2020. The COVID-19 pandemic put a dent in the American Dream mall’s plans.

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The hope for the American Dream Mall is that it is an A class mall. An A class malls houses luxury brands–Bulgari, car dealerships like Tesla, and tech stores like Apple. B class malls are run-of-the-mill types mall that would be anchored by stores like Sears, J.C. Penney, and Macy’s, and C and D type malls that are on the lower end of the economic spectrum. They were already struggling before coronavirus and shuttering their stores for months did not help. And the devolution of the middle class in the US is also not doing C and D malls any favors.

“Most C and D type malls were built when the middle class in America had the preponderance of spending power,” said Lee Holman, lead retail analyst at IHL Group, a global research and advisory firm for the retail industry. “We are talking about the 1960s through the early ‘90s. Any teen movie you saw coming out of the ‘80s and ‘90s was typically based in a shopping mall. What has happened is the transition within society where the middle class has shrunk. The people in the middle class who were diligent were moving into the upper middle class and upper class, and the diligent people in the lower class were trying to move into the middle class and work their way up, but those malls were built where the middle class worked, played, and lived. As the middle class shrunk, so did the traffic in these malls. With the advent of Walmart, Target, and other big box retailers along with Amazon, people didn’t have to go to malls to do shopping, and things got tough for C and D type malls.”

As malls try to reinvent themselves, it is possible that some C and D malls could become dark stores. A dark store is a store where customers do not come in and do actual physical shopping, but, rather, they are in a sense distribution centers that only deal with online orders for delivery. Customers aren’t coming in, but products are going out.

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The anchors for many of these malls, like Sears and J.C. Penney, are shrinking their fleet of stores and finding other large department store retailers to take their place seems impractical. Of course, there are options to use these spaces for other things.

Some malls have tried moving toward more experiential retail but have struggled in their ability to present customers with new experiences. However, experiential retail formats and turning malls into more community type centers could be a way for malls to rebound in the long-term. Malls have been hurt by the rise in e-commerce as more and more consumers are shopping from their laptops and handheld devices. Customers who still prefer in-store experiences rather than online shopping tend to be older. Millennials (born from 1981-1996) and Gen Z (born from 1997-2015) will shop more online, because, compared to previous generations, they socialize online, rather than socialize at a mall. For malls to survive, they must adapt to the way shoppers are living today.

“Malls have to reinvent themselves and repurpose mall space,” said Shawn Grain Carter, professor of fashion business management at FIT. “Malls need more restaurants. Millennials and Gen Z love to eat out. Malls need to become shopping centers and look at adding things like concert halls, spaces for art installations, and exercise studios. This will bring more customers inside the mall. If you want to think of the mall as a new 21st century public square, they need to find ways to appeal to the new generation as well as the older generation who might not be as tech savvy, and another way to do that would be adding health clinics inside of malls. All these things would create a multigenerational public square that would change the way people shop. Malls can become public squares for the community and it’s a thing malls need to think about as they ask why they still exist, and go beyond just shopping.”

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Despite consumers shift toward more online shopping, Grain Carter believes that in a world with a COVID-19 vaccine, people will want to go back to malls because there is pent up demand for in-person human interaction. Because the right to in-person interaction was taken away from people in such a stark way, people now love the idea of doing things in-person. Retailers will still have to look at integrating their omnichannel strategy more successfully. One of the most successful pivots that has come out of the pandemic is curbside pick-up. Customers could order things online, and if it was available at a local retailer, they could pick up there in-person. This became a key revenue driver for retailers during the early reopening phases before they could let customers inside stores once again.

“Malls will have to completely reinvent themselves, offer real reasons to come, entertainment, other services, anything but what they are doing now,” he said. “Also, well over 50 percent of them will not survive the next six months, and that is all depending on a vaccine.  Without a vaccine, then maybe 25 percent will survive. People have tried more online shopping, and are discovering just like with offices, you really don’t have to be physically present. Amazon is getting so good at reverse logistics that even returns are a joy. This makes it easy to compete with a boring retail store, which is what most have become.”

Robert Conrad, the Associate Chair of Fashion Merchandising at LIM College, believes that it was long overdue that malls began rethinking how they use some of their space. Customers want more experiences rather than things, and malls that have or can figure out how to make retail more experiential are poised to survive. According to Conrad, “It’s very easy to imagine a future where 1/3 of the number of malls in America go away. This country has too much space devoted to retail, and mall owners will have to think about how to utilize this space into other things.”

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While middle market retailers are struggling to comeback, the luxury sector is still going strong. According to Conrad that is because, “The stock market is doing well, despite the tumult of this past year. The people who make their living in the ‘work from home’ economy, they might’ve been inconvenienced, but they are still making a good living and shop at luxury stores.”

Although Conrad believes people will return to malls, he doesn’t see mall traffic ever returning to late nineties levels when they were at their peak. Malls that survive can still evolve and thrive, but many will be left looking like “Scooby Doo” ghost towns.

Leslie Ghize, vice president of Tobe The Donneger Group, a retail a consulting and strategy firm, is also in agreement that the market for malls was over saturated. “We have been and are oversaturated in retail, especially in the United States,” Ghize said. “Even before coronavirus, there needed to be an adjustment to that. Coronavirus just pushed the situation further. We have a lot of real estate in retail and it was too heavy to hold itself up.”

Ghize believes that malls will go in two different directions. First, most malls won’t make it. Some malls will transform into real estate players for businesses that need a lot space, like wellness businesses, fitness centers, and food concept stores. High-end stores could start creating elevated types of concepts, like live events and experiences, that are more exclusive and aspirational than a classic US mall.

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Secondly, for malls to help turn themselves around, Ghize believes mall owners need to get more creative and flexible in their lease agreements. “For the smaller, direct-to-consumer, and boutique brands that are on the come up, leasing retail space in a mall under the traditional lease structure is a big commitment, and not one young brands would want to make,” she said. “Mall owners need to give opportunities to smaller, up-and-coming brands that don’t have a lot of brick-and-mortar space yet. Outdoor malls and open-air malls will be better off in the short-term, but in general malls aren’t as appealing a concept anymore.”

Ghize also said that for malls to be at their best operational capacity, at least one third of the malls currently in the US would have to close. While the idea that malls are just dreary and dead is an over exaggeration, there is no question that malls will never return to their former glory. However, through downsizing, experiential retail, and getting younger, boutique style brands as tenants, there is still hope for malls. The start of a real comeback will probably take a COVID-19 vaccine. Let’s keep fingers crossed for 2021.

—Kristopher Fraser

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