Issue: Shopping Malls Shopping Malls By: Sharon O’Malley Pub. Date: August 29, 2016 Access Date: October 1, 2021 DOI: 10.1177/237455680217.n1 Source URL: http://businessresearcher.sagepub.com/sbr-1775-100682-2747282/20160829/shopping-malls ©2021 SAGE Publishing, Inc. All Rights Reserved. ©2021 SAGE Publishing, Inc. All Rights Reserved. Can they survive in the 21st century? Executive Summary For one analyst, the opening of a new enclosed mall is akin to watching a dinosaur traversing the landscape: It’s something not seen anymore. Dozens of malls have closed since 2011, and one study predicts at least 15 percent of the country’s largest 1,052 malls could cease operations over the next decade. Retail analysts say threats to the mall range from the rise of e-commerce to the demise of the “anchor” department store. What’s more, traditional malls do not hold the same allure for today’s teens as they did for Baby Boomers in the 1960s and ’70s. For malls to remain relevant, developers are repositioning them into must-visit destinations that feature not only shopping but also attractions such as amusement parks or trendy restaurants. Many are experimenting with open-air town centers that create the feel of an urban experience by positioning upscale retailers alongside apartments, offices, parks and restaurants. Among the questions under debate: Can the traditional shopping mall survive? Is e-commerce killing the shopping mall? Do mall closures hurt the economy? Overview Minnesota’s Mall of America, largest in the U.S., includes a theme park, wedding chapel and other nonretail attractions in an attempt to draw patrons. Northland Center in Southfield, Mich., was America’s grandest shopping center when it opened in 1954. It died last year. Once the world’s largest shopping center, with a vast outdoor parking lot and 111 stores, anchored by a Hudson’s, Detroit’s largest department store, it housed a bank, a post office, a theater and several auditoriums. Although its stores were closed on Sundays back then, the open-air complex, which featured fountains, artwork, trees and sculptures, became a popular after-church destination for suburban Detroit families. 1 “The theater was a big draw for Northland,” architect and mall historian Lauren Ortega said, and the sprawling 159-acre shopping center “became a part of a ritual of suburban life,” as did thousands of other shopping centers around the country. 2 To compete with newer indoor malls, the owners placed a roof over the iconic open-air center in 1974. Seventeen years later, the mall added a food court with a Cinnabon and a Panda Express, by then must-have mall staples. Page 2 of 25 Shopping Malls SAGE Business Researcher ©2021 SAGE Publishing, Inc. All Rights Reserved. But the changes were not enough to stave off a slow decline precipitated by a sluggish economy, competition from newer, higher-end malls and a growing exodus of shoppers to online stores. In 2015, with its department store anchors gone, half of its storefronts vacant and its operating losses running $250,000 a month, a dilapidated Northland Center closed for good. 3 Northland was one of dozens of decaying regional malls—enclosed shopping centers measuring 300,000 square feet or more that draw visitors from long distances—to shutter since 2011, according to Green Street Advisors, a research and consulting firm that tracks mall activity. 4 At least 15 percent of the country’s 1,052 regional and super-regional suburban malls will close over the next decade, it predicts. Some will be razed; others will be converted into community centers, churches or schools. 5 (See Short Article, “Developers Reinventing an American Institution.”) Other industry analysts foresee a future with even fewer massive malls. Urban planner Ellen Dunham-Jones forecasts that 42 percent of malls are already dead or on the brink of closing. A CoStar Group survey last year determined that in nearly one-fifth of enclosed malls, 10 percent or more of storefronts are vacant. And 3.4 percent had vacancy rates of 40 percent or greater—a sure sign of pending death. 6 Still, not every enclosed mall is in danger; in fact, many Americans might not stand for it if they were. In a 2016 survey by Australia-based Westfield Corp., the fourth-largest shopping mall developer in the United States, 45 percent of U.S. shoppers ranked the traditional mall as their preferred retail destination. 7 And about 80 percent of the country’s enclosed malls have vacancy rates lower than 10 percent and are therefore classified as healthy, according to the CoStar survey. 8 One example is Minnesota’s 4.2 million- square-foot Mall of America—the largest, in square feet, in the U.S.—with its theme park, wedding chapel and other non-retail attractions. Owners of the largest, most profitable malls performed better financially in 2014 than investors in other kinds of real estate. 9 “There are clearly shopping malls in the U.S. that are high value,” says architect Terry Shook, founding partner of Charlotte- and Los Angeles-based Shook Kelley, who points to real estate investment trust Taubman Centers, which invests only in shopping malls. Sales at Taubman properties average an industry-topping $712 per square foot. 10 That’s proof, says Jan Rogers Kniffen, CEO of J. Rogers Kniffen Worldwide Enterprises, a retail consulting firm, that “the malls are not dying, and the malls When it opened in 1954, Northland in suburban Detroit was the are not going to die. We may see some serious attrition among these great world’s largest shopping center, housing 111 stores on a malls, the 1,100 regional malls. But we’re never going to see [top-tier mega- sprawling 159-acre site. (Bettmann/Getty Images) malls] struggle. They’ll just take more share.” Daniel J. Busch, a Green Street senior analyst, agreed: “One of the biggest misconceptions is that the malls in aggregate are struggling or even dying.” 11 Still, tracking dead and dying malls has become something of a spectator sport for historians, the media and nostalgic shoppers. DeadMalls.com, a website with cultlike status among mall-watchers since it started collecting stories of decaying malls in 1999, said that New York, Pennsylvania and Illinois are losing malls at a quicker clip than other states. 12 A litany of woes is to blame, according to retail analysts, including: E-commerce. Perhaps the primary threat to malls, online shopping is growing faster than in-person shopping. Anchor-store closings. Reeling from the online threat and competition for Millennials’ dollars from “fast-fashion” retailers like H&M and Primark, mall anchors such as Sears and Macy’s have closed hundreds of mall-based stores, taking with them the foot traffic that smaller mall stores rely on for sales. 13 Changing demographics. As teens, Baby Boomers loved to hang out at the mall. Now retired or heading toward it, most are empty nesters who no longer need to buy as much for their homes or themselves. 14 Plus, 58.6 percent of American women work or are looking for jobs, leaving them less time for shopping at the mall. 15 And teens spend 26 percent less time at the mall compared to 10 years ago, according to investment bank PiperJaffray, which conducts a semi-annual survey of teen spending. 16 Too many malls. “The U.S. is undoubtedly over-malled,” Green Street analysts noted in the firm’s 2015 U.S. Mall Outlook. In fact, in many markets, a mall’s biggest threat is other malls. Green Street called mall closings “a healthy outcome,” given the oversaturation. 17 Page 3 of 25 Shopping Malls SAGE Business Researcher ©2021 SAGE Publishing, Inc. All Rights Reserved. Mall consolidation. Publicly traded Real Estate Investment Trusts, or REITs, control the majority of U.S. malls, and they began the merger trend in the late 1990s as they bought up or merged with their competitors. Further consolidation is expected. 18 One byproduct: REITs are spinning off underperforming malls from their portfolios, creating separate entities to own them, sell them or kill them, and refocusing their resources on expanding or redeveloping their malls into high-end shopping destinations in the United States and Asia, where indoor malls are still thriving. 19 Outstanding loans. Hundreds of malls across the country owe an aggregate $47.5 billion on loans taken out during a 1990s “borrowing binge” for mall construction, according to data from Bank of America Merrill Lynch. 20 Some mall owners may opt to walk away from their weaker properties rather than foot the bill. General Growth Properties Inc., the second-largest U.S. mall owner, defaulted on a $144 million loan on suburban Detroit’s Lakeside Mall that came due in June. 21 That mall’s fate is up in the air. Most of the casualties will be older, so-called Class B and Class C malls whose owners have not invested in their upkeep or upgrades the way they have for top-tier, Class A properties. Many will be in communities with declining populations and high unemployment, and no longer appeal to shoppers. “When you look at a mall that might be struggling, the broader economy in those individual communities is probably struggling,” says Tom McGee, CEO of the New York-based International Council of Shopping Centers, the global trade association of the shopping center industry. “With a very consumer-facing industry like shopping, to the extent that the economy is struggling, that will affect the malls.” With each closing, the era of the traditional suburban shopping mall, begun around the same time Northland Center opened, will fade a bit further into history.