The future of the American mall

Somewhere in suburbia, a shopping mall stands empty, spookily devoid of the retailers and bustling foot traffic that marked the golden era of the mammoth-sized mall. Photos of such centers, now gutted and grim, have become visual evidence of a fact-of-retail: The mall is dead.

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Not quite.

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“The malls that are anchored by bad department stores, that are failing, really are dead,” said Ken Morris, principal at Boston Retail Partners. “There will be fewer malls — that’s a fact. But what’s interesting is what’s happening to the good malls. They’re evolving and, frankly, they’re packed.”

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The divide between “bad malls” and “top-tier malls” is widening, as major retail real estate groups like Simon, Westfield and General Growth Properties pour money into revamping existing malls that are catering customers in high-traffic locations. In effect, industry soothsayers are backpedaling: The bad mall is dead, sure, but otherwise, malls are transforming with the times.

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Today’s high-performing malls have a few traits in common. They’re more diversified to include destinations beyond the typical department store, like theaters, restaurants, fitness centers and grocery stores. Elsewhere, online retailers and speciality stores and services are moving into the mall layout, replacing antiquated brands. Throughout mall corridors and in stores, technology, like digital navigation and mobile checkout, is becoming increasingly necessary to make a trip to the mall more streamlined for time-starved shoppers.

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“Amazon is the 800-pound gorilla in the room that has brought uncertainty to all physical retail types,” said DJ Busch, managing partner at Green Street Associates. “But if a mall can provide a unique experience, it will evolve and thrive.”

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Survival of the fittest
In a November report from Fung Global Retail and Technology, managing director Deborah Weinswig referred to what’s happening to the shopping mall in America as “retail Darwinism.” There are simply too many malls — according to the International Council of Shopping Centers, there are 1,221 malls in the United States — and the rise of Amazon and e-commerce is weeding out the weakest properties.

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Of course, not all malls are created equal. Increasingly, malls in urban areas and tourist regions, from Manhattan to Hawaii, are outpacing the suburban mall. Of those 1,221 malls, 20 percent, or 270, are “Class A” malls, ranked by productivity. These malls account for 72 percent of all mall sales, according to Fung’s report. The top 10 malls in the country average sales of $1,000 per square foot, 2.5 times the industry average. Middle-tier malls, or Class B and C malls, account for 550 centers and generate 28 percent of mall sales.

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“Given the current oversaturation of malls in the U.S., at least 30 percent of them need to be closed,” Weinswig said, adding that mall owners need to reinvest in top-performing malls, rather than new properties, to ensure they don’t become obsolete.

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In an August earnings report, Simon Properties Group announced that it was investing $2.1 billion into its top 33 properties to undergo redevelopment and expansion. Westfield Corporation is currently investing $10.5 billion into both construction and future development projects, while General Growth Properties has put $1.3 billion into redevelopment.

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“The owners who invest in developing more excitement at these malls will be successful,” said Jane Hali, CEO of retail research investment boutique firm Jane Hali & Associates. “That’s why top malls are becoming stronger: Investors and owners are putting their money into making them better competitors.”

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Dropping anchors
New investments in existing malls have brought a more diverse assortment of tenants to the retail centers, which have typically been anchored by major department stores. As those retailers shutter locations — Macy’s is closing 100 storefronts this year, while Sears will close 26 by the end of March as part of its ongoing downsizing — grocery stores, fitness centers, movie theaters and restaurants are moving in.

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At the Natick Mall in Massachusetts, a closed JCPenney store made way for a Wegmans grocery store, slated to open this year. The King of Prussia Mall in Philadelphia replaced a former Sears with a Dick’s Sporting Goods and a Primark, the Irish fast fashion retailer that now has six U.S. locations. In Florida, the Boca Town Center Mall is anchored by a Youfit Health Club. Two urban center malls — The Westfield World Trade Center in Manhattan and The Prudential Center in Boston — have filled real estate with Mario Batali’s Italian market and restaurant concept, Eataly.

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“Bad department stores are anchoring and killing these malls — as the tide rises, they’re pulling the boat under,” said Morris. “Malls need to think differently about who their anchors are. Thinking outside the box about what type of retailer is going to serve as a destination — that could be a grocery store or restaurant or theater — that’s how you attract people.”

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New anchors that distance malls from the dim of a dying Sears draw more attractive tenants all around, according to Hali. Online pure-plays like Warby Parker, Bonobos and Indochino want to open showrooms in malls where it’s easier and cheaper to get stores off the ground, and foot traffic is guaranteed — but they want to be in the right mix of fellow tenants. Other mall newcomers, like specialty beauty stores, boutique fitness studios and blow-dry bars are looking for the same.

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And there is more space available: The shuttering of stores like Wet Seal and The Limited has made way for newer stores that are figuratively, at least, rising from the ashes.

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“We’re seeing fewer stores but more important stores,” said Hali. “Millennials who work and live in urban centers are shifting focus there. It’s also a halo effect for e-commerce in those areas — if you have more touch points as a retailer, you’re more connected to customers.”

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The digital mall
When Westfield filled in tenants at the new Westfield World Trade Center, it carefully selected those who could offer a technologically driven experience by way of digital in-store activations and mobile integration. The idea was that embracing technology would lead to each store contributing to an improved mall experience overall.

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“We used to think technology was a threat, but it’s actually an advantage,” said Westfield U.S. co-CEO Steven Lowy. “Malls have shifted to become more exciting places to be by focusing on technology. Instead of competition, we encourage collaboration. If we provide a better overall experience, people will do more business.”

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That applies to in-store technology, as well as innovation throughout the corridors of a shopping center. On Wednesday, Simon Properties Group announced that it was rolling out “interactive mapping” to its website and mobile app to offer navigation between stores, a directory of available services and a guide to real-time stats like parking and weather.

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“It’s all about the experience,” said Morris. “Right now, some of it still feels a little ‘store of the future,’ but anything as simple as mobile checkout and real-time navigation is going to make people rethink the mall. It has to happen.”

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