As shoppers' choices explode, malls struggle to keep their attention

Staff Writer
Columbus CEO

Once stomping grounds for loitering teens and serious shoppers alike, many malls are decrepit relics of the 20th century.

Yellow liquidation sale signs, waterless fountains and empty hallways are representative of the trajectory trend malls are seeing.

Closings are expected to hit 50 percent within 15 to 20 years, adding to the billion square feet of already vacant space, retail analyst Howard Davidowitz said.

The original model for the shopping mall, a colossal suburban structure with big-box retailers as anchors, no longer attracts shoppers.

Instead, consumers are looking for established town centers or downtown areas in walking distance from their homes — if they’re not shopping from their phones or laptops.

Developers are satiating consumers’ wants by building artificial downtowns as an alternative to the traditional mall.

In the 1950s, commercial developers aggressively reached out to the new class of suburbanites with strong buying power, creating one-stop centers for maximum convenience.

By the 1960s, the retail industry brought money from major cities into suburban markets, displaying a large shift in retail that peaked in the 1990s and early 2000s. Now there are more than 200 U.S. malls and shopping centers with at least 250,000 rentable square feet, according to real estate information company CoStar Group.

“The typical U.S. mall, unless it is completely reinvented, will be a historical anachronism — a 60-year aberration that no longer meets the public’s needs, the retailers’ needs, or the community’s needs,” Rick Caruso, the CEO of real-estate company Caruso Affiliated, told the audience at the National Retail Federation’s annual convention in January.

For Simon Property Group, the open-air model, with its downtown vibe, has been profitable. Simon’s outdoor centers incorporate mixed-use development, from high-end retailers and restaurants to office, apartment and hotel space.

Revenue for Simon, the nation’s largest mall operator, has grown in the past four years; the company also built five new outdoor malls in 2013, two in the U.S.

But the trend isn’t keeping consumers’ dollars in the mall arena.

Bike shops, local offerings and green grocers like Trader Joe’s and Whole Foods appeal to the younger generations, and until recently, malls haven’t offered those options to consumers, according to the Urban Land Institute’s 2013 study on Generation Y buying patterns.

“Smaller formats are more suitable for time-conscious shoppers, many of whom may just be … looking at goods they will ultimately buy online,” according to the study.

Showroom models are popping up within urban spaces, where consumers can try on a product and have it delivered in-store or to their door, without the option of purchasing it immediately.

Although the concept of showrooming has been around — think fiddling with a phone at Best Buy before ordering it online through Verizon — reverse showrooming spins the idea.

Shoppers can stop by pop-up boutiques for online-only retailers and try on items on before heading to the computer and purchasing them.

Gwyneth Paltrow’s lifestyle blog Goop is the latest to open a pop-up store in Brentwood, Calif., taking cues from retailers such as Warby Parker and Bonobos who pioneered the “clicks-to-bricks” strategy.

“Stores of almost any size and scale encourage you to see (a product) and buy it,” even if it’s not in the color or size you need,” said Maureen McAvey, senior resident fellow at the Urban Land Institute.

The personalization aspect of shopping is gaining more traction, especially online, where analytics can recommend options for the consumer.

“Consumers are more willing than ever to share their information with retailers,” Keith Mercier, an associate partner at IBM’s Retail Center of Competence, told MarketWatch. “But there’s expectation that if I share, you are going to personalize the information I receive. That expectation is increasing. The opportunity for retailers is: How do you capitalize on that? There’s potential traffic and sales opportunity.”

In the technology market, applications and subscription services such as Style for Hire and Bombfell offer the feel of a personal shopper without having to leave the couch.

The online component of shopping not only changes the market for consumers, but also takes away business from traditional retailers, McAvey said.

E-commerce giant Inc., for example, had a 21.9 percent increase in net sales in 2013.

Big-box retailers are most vulnerable to online shopping because consumers can find the commodity item they need at a lower price than in-store, likely accounting for store closures, McAvey said.

While malls saw almost a 50 percent decrease in foot traffic during the 2013 holiday season, according to the Wall Street Journal, online retailers don’t share the same concerns.

Online purchases constituted 5.8 percent of U.S. retail sales in 2013, nearly tripling from 2004, according to the U.S. Census Bureau.

Large indoor shopping areas rely heavily on department stores, but big-box retailers can’t anchor malls as they did in the past when they’re competing against online prices and convenience.

Before Macy’s acquired several department-store chains in 2005, including May’s, Kaufmann’s and Hecht’s, they were all fighting for a prime corner.

Now, Macy’s, Nordstrom, Neiman Marcus and Saks are at the higher end, with J.C. Penney and Sears struggling to contend.



Four out of every 10 malls in the U.S. cater to higher-income shoppers, analyst Davidowitz said, and Green Street Advisors, a real estate and real estate investment trust (REIT) analytics firm, projected in 2012 that trend will continue through the next decade.

Sears has closed 305 stores since 2010, including its flagship location in Chicago, according to the Chicago Tribune.

“Historically, Sears was the store (that) you could buy absolutely everything,” McAvey said. “You can see by various departments which ones expanded.”

Sears’ same-store sales in the U.S. decreased by 3.8 percent in 2013.

Similarly, J.C. Penney’s same-store sales fell by 7.4 percent in fiscal 2013, compared to 24.7 percent the year before under CEO Ron Johnson, a former Apple Inc. executive.

Johnson’s failure to revive the brand prompted J.C. Penney to fire him in April 2013; the retailer still has not fully recovered from the botched overhaul.

“That change takes time,” McAvey said. “They were losing old customers and not attracting new customers fast enough.”


Department stores aren’t the only retailers struggling.

The teen market in brick-and-mortar locations is declining as online-focused retailers such as Brandy Melville and Shopbop become more prevalent, said Ki Bin Kim, director of U.S. real-estate investment trust equity research at SunTrust Robinson Humphrey.

“In our view, teens didn’t suddenly stop shopping; they are simply spending a significant portion online at very well-run online fashion retailers,” he said.


Teen retailer Abercrombie & Fitch Co. said it expects to close 60 to 70 stores in the U.S. during the fiscal year through lease expirations.

Other stores targeted to teens such as American Eagle Outfitters and Aeropostale have seen store closings and deep sales declines.

Aeropostale’s shares have tumbled 70 percent in the past year, and the unprofitable company plans to close 175 stores within the next few years.

Teen-focused retailers haven’t been able to compete with the rising popularity of stores like H&M and Forever 21, where shoppers can purchase a dress for $15 or a sweater for $8.

“We’re seeing so many people buy through multi-channel shopping,” where teens can purchase everything in one place, including mainstream adult brands, McAvey said.

Athletic apparel stores like Lululemon Athletica have cornered the teen market, but weren’t popular or in existence five years ago, she added.


That leaves malls weaker. Attractions like ice rinks and indoor roller coasters aren’t attracting consumers anymore, and niche stores and food courts are dying.

Even movie theaters haven’t been able to bring in consumers, but are still operational on ticket costs.

The declining foot traffic accounts for the disintegration of the food court model, now replaced by restaurants in many malls. Food court staples Sbarro and Quiznos filed for bankruptcy in March.

“There’s far more array of food choices at most malls, and you’re seeing places encouraging experiences: spin, hair salon and spas, massage and health-oriented places,” McAvey said.

Mall owners are turning to restaurants because that is something the Internet can’t do, said Stephen Lebovitz, president and CEO of CBL & Associates, a real estate investment trust.


They also are investing more money into healthy malls to increase the shopping experience.

At the Westfield Garden State Plaza shopping center in Paramus, N.J., the developers opened a $160 million wing dubbed the Fashion District that features more than 20 new luxury stores.

The renovation is much more modern than the rest of the mall and has tall windows to let light flood in, said Lisa Herrmann, the mall’s senior director of marketing.

Westfield Garden State Plaza generates a little under $1 billion in sales annually, or about $430 per square foot.

A strong indicator for distress is the amount of money brought in per square foot. Higher-quality malls will take in at least $400 per square foot, while a decent B-class mall will yield about $350 a square foot. Any time a mall’s sales fall below $300 per square foot, it’s likely in very serious trouble, retail specialist Gerard Mason said.

Likewise, a healthy mall anchor store should log $200 at least per square foot, and any anchor that falls below $100 a square foot is in imminent danger of closure, according a 2012 report from CoStar.


The average distressed or closed mall was built in 1983 and has a vacancy rate of 50.6 percent, according to CoStar data.

Those vacancies make up approximately 1 billion square feet of vacant retail space, according to Edward McMahon, chair for sustainable development at the Urban Land Institute.

“Over the last 20 years, we have built retail space five times faster than sales,” he said.


Those abandoned malls have seen a surge in popularity for photographers who document the ongoing decay.

A Cleveland-based photographer using the pseudonym Seph Lawless depicts these malls in his book “Black Friday: The Collapse of the American Shopping Mall.”

“These are some of the last images ever taken of (some of) these malls,” Lawless said.

Police and demolition crews chased him out of a Cleveland mall April 3, he said.

Although Lawless said the malls he photographed went untouched by even scrappers, some developers are taking a new angle with the properties, rather than allowing them to deteriorate: a retrofit.

Green Street Advisors has predicted 15 percent of malls will be converted into non-retail space within the next 10 years.

Dead malls have an opportunity to be woven back into society, Ellen Dunham-Jones, a professor of architecture and urban design at the Georgia Tech School of Architecture, told her audience at a 2010 TED Talk.

Developers already have transformed decrepit structures into educational institutions, libraries and medical facilities such as Vanderbilt Health, formerly One Hundred Oaks Mall in Nashville, Tenn.

Other malls have been “totally demolished and houses (were) put up,” McAvey said, emphasizing the best practice for utilizing vacancies is to evaluate the basic draws of the location.

“People of all economic levels are buying something,” McAvey said. “It’s just a matter of where.”


(Eisenberg is a journalism student at the University of Maryland.)

Distributed by MCT Information Services


PHOTOS (from MCT Photo Service, 202-383-6099): RETAIL-MALLS-BIZPLUS


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