Shopping Malls Are Getting Mauled

Even if you’re addicted to Cinnabon there’s not really a good reason to schlep to the local mall unless it’s within walking distance. But then that’s not what malls are all about, right?

Last month in the Atlantic Cities blog, Jeff Jordan considered the “Death of the American Shopping Mall” and he has the charts to back up his thesis.

Simply put, America has too many malls, too much retail space in those malls, and vacancy rates are increasing. This is due in large part to stagnant consumer demand, but the major factor is the rise of e-commerce.

“Many traditional brick-and-mortar retailers are being threatened with ‘economic destruction’ by their advantaged online competition,” Jordan writes. This is not a particularly new idea or threat, but after examining the issue, he says, “I believe we’re seeing clear signs that the e-commerce revolution is seriously impacting commercial real estate. Online retailers are relentlessly gaining share in many retail categories, and offline players are fighting for progressively smaller pieces of the retail pie.”

Physical retailers such as Circuit City, Borders, CompUSA, Tower Records and Blockbuster have fallen due to online competition and many others aren’t doing so hot.

Jordan continues: “These mall and shopping center stalwarts are closing stores by the thousands, and there are few large physical chains opening stores to take their place. Yet the quantity of commercial real estate targeting retail continues to grow, albeit slowly. Rapidly declining demand for real estate amid growing supply is a recipe for financial disaster.”

It’s not a pretty picture when one looks at three measures of retailer health in 2012—total sales growth, comparable store sales growth and number of stores.

Total sales growth, according to Jordan, who looked at the National Retail Federation’s list of the Top 100 retailers in 2012, is mixed and is in negative numbers for 20 percent of the sample. “Comp store sales growth—arguably the key measure of retailer health—is also mixed and a quarter of the sample is negative.”

And many of the sales results include retailers’ online segments, so the performance of the physical stores becomes cloudier.

Finally Jordan notes that store counts “are simply stagnant—about as many top retailers shrank their store count as expanded it, and precious few are expanding aggressively. The largest retailers in the U.S. do not look very healthy. And if they’re struggling, it’s likely that their more marginal physical competitors are struggling even more.”

These trends are making it tough for most of the largest owners of retail real estate. The The Wall Street Journal reported that Green Street Advisor, an analysis firm that tracks REITs, has forecast that 10 percent of the roughly 1,000 large malls in the U.S. will fail within the next 10 years and be converted into something with far less retail.

Briefly put, malls are overbuilt and under-nourished. It’s likely that in the near future hundreds of malls will need to be repurposed or demolished. (BTW check out this fascinating site, deadmalls.com, featuring tales of hundreds of already or soon-to-be dead malls.)

It’s also likely that the strong malls in strong (meaning prosperous) areas will stay strong for a while, but check that broadband connection anyway, because the shift of retail spending from offline to online will continue to gain momentum.

Starting a new retail brand? Do it online.

[Image: Mall Daze- #31 by Patrick DB via Flickr cc]