New tenants are opening and entertainment elements are returning to enclosed malls, but owners must invest and reinvent the format to avoid obsolescence, writes Managing Director Deborah Weinswig
November 07, 2016
NEW YORK – Reports of the death of the regional mall are greatly exaggerated. Heading into the all-important holiday selling season soon upon us, the format is evolving to encompass multiple uses amid changes in both the retail landscape and consumer demand, says “Deep Dive: The Mall Is Not Dead – Part 1,” the first in a three-part series that analyzes the state of U.S. retail real estate industry from international think tank Fung Global Retail & Technology.
Top malls continue to attract new and varied tenants as their role in showcasing and even launching new brands cannot be underestimated. In addition, operators of entertainment and dining outlets have returned to the mall in search of higher traffic. However, declining traffic, increasing competition from e-commerce and outlet centers, oversaturation and obsolescence.
“The mall is not dead, but it is transforming in order to accommodate shifts in consumerdemand,” Weinswig writes. “In many cases, malls will need to repurpose their space to become hybrids or A malls in order to become relevant in today’s economy.”
The retail real estate industry remains on a post-recession upswing, and occupancy rates have stabilized at about 94 percent since 2014, after hitting a low of 89 percent in 2009. Mall owners say that productivity at top properties is up. Though traffic has steadily declined for the past 42 months, including a 9.1 percent drop since 2015, conversion rates continue to rise, indicating that shoppers are concentrating their purchases into fewer trips.
Some companies are looking to benefit from these shifts. Tesla Motors has moved its showrooms into malls to take advantage of the traffic they generate rather than locating in outlying suburban locations. Many restaurants, once located in mall parking lots, are moving back inside centers. Cinemas that had moved out of the malls also are returning.
“Even though some stores have closed, many new ones are opening and creating hybrid formats we have not seen before,” Weinswig writes.
But the retail landscape has continued to evolve, with new modes of shopping, including e-commerce, consignment services, the sharing economy, subscription packages and even factory outlet centers taking share from the traditional mall. The result is a form of retail Darwinism, with top producers attracting ever more business, and weaker properties continuing to decline. Just 20 percent of malls (approximately 270), categorized as Class A based on productivity, generate 72 percent of all mall sales. The top 10 malls in the U.S. average sales of more than $1,000 per square foot, 2.5 times the industry average. In addition, these properties have seen sales productivity increases of more than 10 percent over the past 10 years. Class B and C centers total about 550 in the U.S., but represent just 28 percent of mall sales. Fewer than 80 Class D malls account for just 0.2 percent of all mall sales. The current total of 1,221 malls in the U.S. according to the International Council of Shopping Centers simply is too many.
“Given the current oversaturation of malls in the U.S., we believe that at least 30 percent of them – mostly within the C and D classifications – need to be closed,” Weinswig writes. “Mall operators and owners must reinvest, even in properties in good locations, in order to ensure their malls remain productive; otherwise, those properties will become obsolete.”
The full report can be found here. Future reports in the series will analyze department stores in malls, trends impacting malls, malls’ evolution and store concepts that are expanding.
Previous reports issued by Fung Global Retail & Technology include: “US Furniture Market 2016: Preferences and Trends” and “Deep Dive: The Changing Retail Landscape & the Evolving Opportunity for Better Demand Planning.” Fung Global Retail & Technology’s reports and analyses can be found at www.coresight.com and www.deborahweinswig.com. Subscribe here to Deborah Weinswig’s daily news and analysis on retail, fashion and technology.
About Fung Global Retail & Technology
Fung Global Retail & Technology is a think tank whose research team, based in New York, London and Hong Kong, follows emerging retail and tech trends, specializing in the ways retail and technology intersect, and in building collaborative communities.
The team, led by Deborah Weinswig, former top Wall Street and retail tech analyst and startup advisor, publishes ongoing thematic and global market research on topics such as the Internet of Things, digital payments, omni-channel retail, luxury and fashion trends and disruptive technologies.
More information can be found at www.coresight.com.