The State of the American Mall: Competitive, Attractive and Here To Stay

Introduction

Dying shopping malls are points of cultural fascination in the US, and content on the death of the American mall generates intense nostalgia among Americans who grew up enjoying these cultural destinations. Yet the picture is nuanced, and top-tier American malls are outperforming.

Headlines, online columns, YouTube channels and even entire websites dedicated to dying malls have populated the media over the past decade. Then, in 2020, the pandemic hit, devastating all malls across America as they were forced to close.

Since the lifting of restrictions and consumers’ gradual return to more normal ways of living, physical retail has bounced back, with 2022 seeing Coresight Research track more store openings than closures for the first time since 2016.

In this report, we present data-driven research into the American mall format, analyzing recent occupancy rates and revenue growth of top-tier malls. We explore the reasons behind the robust performance of malls, analyzing the halo effect of omnichannel, rising online customer acquisition and marketing costs, changing consumption patterns and more.

For our analysis in this report, we define mall tiers as below:

• Top-tier malls: malls featuring luxury retailers and newer direct-to-consumer (DTC) brands; often located in moreaffluent areas where a typical shopper has an annual income of over $200,000 (based on census block median household income of mobile phone location data for a plurality of mall visitors)
• Mid-tier malls: malls that have anchor retailers and few or no vacancies; located in moderately affluent neighborhoods where a typical shopper has an annual income of around $100,000
• Low-tier malls: malls that have an empty anchor, declining sales and a less-affluent customer demographic

Market Scale and Opportunity

According to data from ICSC (formerly the International Council of Shopping Centers), malls make up a shrinking proportion of total US retail gross leasable brick-and-mortar area—down to 5.5% in 2023 from 5.7% in 2014. This contraction is driven by low-tier malls, which were closing before the pandemic and many of which continue to struggle today due to stiff competition from e-commerce and other shopping centers, as well as their inability to attract retailers and brands that customers desire at the mall. Other retail formats, such as open-air shopping centers, have also drawn customers away from underperforming malls due to a similar retailer makeup.

ICSC estimates that 12.9% of US consumer expenditure on retail goods, food services and other retail-adjacent services went through malls in the first quarter of 2023—meaning malls capture a greater share of sales than their share of space and, so, have higher sales productivity in terms of gross leasable area than other retail formats such as open-air shopping centers (which account for 34.3% of total US retail gross leasable area but saw 41.7% of consumer expenditure on goods and services flow through the channel in the first quarter of 2023, according to data from ICSC). High sales productivity is more pronounced at top-tier malls, which enjoy a more affluent customer base and are located in desirable areas for retailers to build and maintain their brand image.

Retail and retail-adjacent services expenditure at malls totaled $728.9 billion in 2021 and $818.7 billion in 2022, according to ICSC—representing an 11.2% year-over-year increase.

Figure 1. Retail and Services Spending at Malls (Left Axis; USD Bil.) and Malls’ Share of Total US Retail and Spending (Right Axis; %)

Source: ICSC

 

The State of the American Mall: Coresight Research Analysis

Strong Occupancy Rates Reflect Demand for Retail Space

Malls have been rebuilding their occupancy rates since the pandemic hit them hard. The positive trajectories shown in Figure 2 point to heightened demand for real estate from retailers as they look to expand their physical footprint. The recovery has been stronger at top-tier malls: Occupancy stood at an average of 95.1% in 2022, still slightly below pre-pandemic occupancy levels, we calculate from S&P Capital IQ data. Among non-top-tier malls, occupancy was lower than for top-tier malls in 2022 and lagged pre-pandemic levels more meaningfully.

High occupancy rates are favorable to malls, in terms of revenue (as we discuss later), and retailers, which are better positioned to attract traffic as consumers browse and shop in highly occupied malls. Our data on occupancy represent public mall operators and exclude privately owned mall operators.

Figure 2. Average Occupancy Rate: Top-Tier vs. Non-Top-Tier Malls (%)

Data from public mall operators
Source: Company reports/S&P Capital IQ/Coresight Research

 

Growing Revenue Is Supported by Increasing Minimum Base Rent

Further indicating demand for retail space, year-over-year growth in the average minimum base rent at top-tier malls stood in the mid-teens percentage range for four consecutive quarters, from the fourth quarter of 2021, we calculate from S&P Capital IQ data. Although growth slowed in the fourth quarter of 2022, minimum base rent remains high.

Figure 3. Top-Tier Malls: Average Minimum Base Rent (Left Axis; USD per Sq. Ft.) and YoY Growth (Right Axis; %)

Data from public mall operators
Source: Company reports/S&P Capital IQ/Coresight Research

 

In revenue growth, both top-tier and non-top-tier malls (across public mall operators) saw CAGRs in the mid- to high-single digits between 2020 and 2022, as shown in Figure 4.

Figure 4. Total Revenue: Top-Tier vs. Non-Top-Tier Malls (USD Bil.)

Data from public mall operators
Source: S&P Capital IQ/company reports

 

Mall Traffic Exceeds Pre-Pandemic Levels and Continues

Following pandemic-led disruption and temporary physical retail closures in 2020 and 2021, malls saw a recovery in foot traffic in 2022, based on a random sampling of 120 malls from Placer.ai, conducted by Coresight Research. Traffic at top-tier malls was up 12% on average in 2022 compared to pre-pandemic 2019 levels, while traffic at non-top-tier malls was up 10% (see Figure 5).

Figure 5. Change in Mall Traffic Compared to Pre-Pandemic 2019 Levels (%)

Source: Placer.ai/Coresight Research

 

The Coresight Research US Consumer Tracker (our weekly consumer surveys) reiterates this positive trend of increasing traffic between mid-2020 and the end of 2022: a huge 40.3% of respondents reported that they visited a mall in the past two weeks in our December 28, 2022, survey (see Figure 6). Although year-to-date 2023 has seen lower proportions visit malls than that peak, this follows a pattern of post-holiday slumps, and we expect future surveys this year to show increases in traffic (on the basis there is no major change in consumer sentiment).

Figure 6. Proportion of US Consumers Who Visited a Mall Within the Last Two Weeks (% of Respondents)

Base: 400 US consumers aged 18+, surveyed weekly
Source: Coresight Research

 

Trade Areas

Trade areas are defined by location data showing where visitors travel from to shop at a retail location (such data do not account for frequency of visits, just the number of visitors). We divide shoppers into two groups:

• Long-Distance Visitors—visitors whose home residence is 100 miles or more from the mall, making it a shopping destination
• Local Visitors—visitors who live within a 100-mile radius of the mall and so can make regular visits

According to location tracking data aggregated from cell phones by Placer.ai, the impacts of the pandemic in 2020 in terms of visitors were substantial at both top-tier and non-top-tier malls, though the latter saw a recovery in 2021 as their customers are typically local visitors.

Due to the easing and lifting of both domestic and international travel restrictions and consumers releasing pent-up desire to travel and shop, both top-tier and non-top-tier malls attracted more visitors in 2022, exceeding pre-pandemic 2019 levels. Growth was driven by long-distance visitors at top-tier malls, as shown in Figure 7. Additionally, trade areas expanded during this period—especially for top-tier malls, as they captured market share from other retail formats such as shopping centers. Non-top-tier malls also saw some expansion in trade areas as well, but this expansion was subdued compared to top-tier malls.

Top-tier malls serve as destinations (combining retail, dining and experiences in a single format) that attract domestic and international travelers, so we expect to see further increases in traffic from international shoppers in 2023—such as from China, where international travel restrictions were only lifted in January 2023. As non-top-tier malls are not destinations, Coresight Research expects the format to see growth in long-distance visitors slow in 2023 and beyond.

Figure 7. Local Visitors vs. Long-Distance Visitors: Change in Number of Visitors to Malls Compared to Pre-Pandemic 2019 Levels (%)

Format	2020	2021	2022
Local Visitors
Top-Tier Malls	(26)%	(5)%	8%
Non-Top-Tier Malls	(20)%	1%	7%
Long-Distance Visitors
Top-Tier Malls	(33)%	(6)%	11%
Non-Top-Tier Malls	(26)%	0%	8%

Source: Placer.ai/Coresight Research

 

Major Factors Driving Mall Growth

Multichannel Presence Produces a Halo Effect for Brands, Boosting Sales and Reducing Customer Acquisition Costs

Establishing an effective omnichannel strategy is increasingly becoming a necessity in retail, with brick-and-mortar retailers looking to combat challenges from e-commerce and online brands seeking to expand their reach and tackle rising customer acquisition and marketing costs by launching in physical stores. Many brands and retailers report that establishing a presence in both the online and offline channels produces a powerful halo effect on sales.

High-end mall owners, such as Brookfield Property Group, Macerich, Simon Property Group and Taubman Centers, have reported high demand for retail space in recent quarters as consumers return to stores while simultaneously researching and shopping online—reiterating the significance of the halo effect.

• In Simon Property Group’s fourth-quarter 2022 earnings call, David E. Simon, Chairman and CEO at the company, shared that the average base rent had increased by 2.3% year over year to $55.13 per square foot, driving net operating income (NOI). Simon noted that value-oriented retailers, for example, are following an aggressive opening program, which will support NOI and growth for top-tier malls in 2023 and 2024.
• During its most recent fourth-quarter 2022 earnings call, Macerich reported high occupancy rates and strong leasing volumes, with the kind of retailer demand not seen since before the Global Financial Crisis.
• During a webinar in August 2022 with Deborah Weinswig, CEO and Founder of Coresight Research, William Taubman, President and COO of The Taubman Company, shared that in “the last 10 years, 75 or maybe even 80% of [the company’s] new stores had been renewals… Right now, renewals are running at 40%” as a result of many store openings from new brands with fresh capital, such as DTC brands that are expanding their presence offline.

Even in the third quarter of 2022, which was a more challenging quarter for retailers due to the macroeconomic environment, Simon explained, leasing velocity did not experience pullback in terms of opening new stores or renewals. In fact, Simon Property Group found that issues with online returns had such a large impact on their retailers’ e-commerce revenue that bottom-line growth was primarily coming from the physical-store side of their business. Processing returns via BORIS (buy online, return in-store) cuts costs associated with shipping and provides increased convenience to consumers, which can boost loyalty. In addition, when consumers make an in-store return, they may be more likely to purchase other items from the retailer, which benefits the retailer through more potential sales.

Brands and retailers also face rising online advertising costs, which pose an increasing challenge in the current macroeconomic environment. Part of the reason behind these rising costs include increasing numbers of users opting in to data privacy features, such as Apple’s “app tracking transparency” feature. According to a Coresight Research survey conducted in the US and the UK in 2022, 64% of consumers are very or extremely concerned about privacy and data protection, potentially making them less willing to share personal information and opt in to data privacy features. Data privacy features make it more difficult for online platforms to effectively target consumers, so they drive up costs for their advertisers.

Rising direct and indirect costs impact retailers’ ability to acquire customers and drive incremental online revenue. In fact, rising customer acquisition costs are seen as the top obstacle to achieving 2022 e-commerce goals by 61% of retailers and 66% of digital-first retailers, according to a 2022 study by CommerceNext. According to Pano Anthos, Founder and Managing Director at venture fund and startup accelerator XRC Labs, most brands experience a blended customer acquisition cost from online and physical traffic, making both channels important for brand and product education: a consumer will perform research online and then make an educated purchase in a physical store.

We are seeing a trend of offline expansion by DTC brands and DNVBs (digitally native vertical brands), partly due to the change in the investment environment as these online-only brands are challenged to find funding. Offline expansion enables DNVBs to demonstrate profitable growth. The Coresight Research DNVB Databank shows that nearly half (45%) of tracked DNVBs have opened physical stores.

• Apparel brand Untuckit, which was launched as a DTC brand, began to establish a physical retail presence in 2015. Brent Paulsen, Managing Director, Head of Retail at Untuckit, told Coresight Research that when considering new locations to open stores, the company uses tools to identify lookalike customers, often working with mall owners to identify similar malls. By opening new locations, Untuckit aims to attract both its existing customers as well as expose new customers to the brand. Untuckit has observed that its physical locations contribute to the growth of its online business, as “most better customers shop both channels,” according to Paulsen. Notably, Untuckit’s physical locations have resulted in its online revenue increasing north of 10%, he said.
• Travel DNVB brand Away, which was founded in 2015, began opening physical retail locations in 2017. Away expanded to 13 brick-and-mortar locations across the US, Canada and the UK, but it has not opened any new locations since 2021. In April 2023, Catherine Dunleavy, President of Away, shared that the company will continue to expand its physical retail footprint in 2023, with openings in San Jose and Washington, D.C. scheduled this year. Dunleavy said that opening a physical location provides Away’s e-commerce business with a “150% lift in that market,” indicating the powerful halo effect of physical retail locations across a business.

Retailers with an existing strong brick-and-mortar presence also report a halo effect when they choose to invest in both online and offline channels:

• Jon Thompson, Vice President of Real Estate at apparel brand Express, told Coresight Research that the company, whose stores are primarily located in enclosed malls, has grappled with rising customer acquisition costs, and its e-commerce business, in particular, suffered during the pandemic. Now, on the other side of the pandemic, Thompson shared that customer acquisition costs among e-commerce and brick-and-mortar locations are comparable for Express—investing in physical stores in addition to online has reduced customer acquisition costs, contributing to overall profitability for the business as a whole. Post pandemic, Express is selecting a physical footprint that aims to both introduce new customers to the brand as well as reacquire lost customers. The company has also started targeting a more affluent customer, with top-tier malls providing more favorable locations than lower-tier malls for physical stores.

With these case studies in mind, investing in physical stores that are independently profitable also enables e-commerce brands and retailers to tap the halo effect of driving online traffic without any of the associated costs.

Collective Brand Synergy in Physical Retail Increases Sales

Brands’ physical retail locations reveal the importance of brand synergy in driving sales in malls. Brand synergy is the idea that brands generate more value by being in close proximity to other high-value or sought-after brands, which brands leverage to identify new locations that are likely to be successful, as well as increase store foot traffic from engaged shoppers.

• According to Paulsen, Untuckit prefers its physical locations to be adjacent to other men’s brands, particularly popular legacy brands, such as Brooks Brothers or Crew. This enables the company to attract lookalike customers to its existing customers as it positions itself in the same tier as its neighboring tenants, illustrating the effectiveness of brand synergy.
• To identify new mall locations, Express triangulates mall profiles and co-tenants from other malls that it is already successful in, explained Thompson. When profiling a mall, Express analyzes other stores in the mall to understand primary interests of customers going in and out of the mall—for example, is it a fashion-oriented mall? As Express is a fashion-forward apparel brand, the tenants that it looks to co-locate with include other fashion and apparel brands such as Aritzia, Banana Republic, H&M, Crew and Uniqlo.
• Luxury conglomerates, namely LVMH and Kering, have achieved remarkable global growth in recent years, including in the US market. For example, Bernard Arnault, CEO of LVMH, said during the company’s fourth-quarter 2022 earnings call that revenue in the US market was up 15% year over year in 2022, with high points for 2023 to including the opening of physical stores, as “a return to physical stores and the experience in a physical store will always be extraordinary as compared to an online purchase.” However, luxury brands are not simply expanding their physical footprint: having spoken with mall operators and analyzed store openings, we have seen that luxury brands are opening more standalone locations and even leaving some department stores. For example, in the last six months, Gucci has opened several standalone stores at shopping centers around the US, including at Kenwood Town Centre in Cincinnati, Plaza Frontenac in St. Louis, and The Shops at La Cantera in San Antonio. Gucci has also left locations at department stores in recent years, such as Neiman Marcus and Saks Fifth Avenue. This trend enables malls to increase overall sales and attracts other tenants who wish to co-locate with these desirable brands.

Top-Tier Malls Can Leverage Financial Resources To Continually Reinvest In and Reimagine Mall Locations

Compared to lower-tier mall operators, top-tier mall operators have the financial resources to continually reinvest in and renovate malls to inspire consumers and meet evolving demand for experiences. These resource-rich operators are attractive to retailers looking to grow their physical footprint.

Simon Property Group unveiled renovations to Phipps Plaza, a mixed-use destination in Atlanta, in late 2022. The redevelopment includes a Nobu Hotel and Restaurant, a Life Time athletic facility, a Citizens Market and a Class A office tower.

Redevelopment of Phipps Plaza
Source: Simon Property Group

 

Other examples of major reinvestments by top-tier mall operators include Taubman’s $200 million renovation of The Mall at Green Hills in Nashville in 2019. The renovation included 132,000 square feet of inline retail space and expanded luxury and home offerings, including a new Dillard’s and the opening of a 70,000-square-foot store by luxury furniture retailer RH.

Malls Drive Sales and Improve the Customer Experience Through Investment in Omnichannel

Mall owners’ investments in building out omnichannel capabilities enables a more convenient shopping experience for consumers while increasing the number of sales channels for retailers, driving growth.

One notable example is Canadian REIT Cadillac Fairview, which has invested in partnerships with technology solutions providers to enhance its omnichannel offerings, such as delivery and returns services. In August 2021, Cadillac Fairview announced partnerships with Swyft and ReturnBear to enhance service speed, reduce costs and boost convenience for customers. Through its partnership with Swyft, a last-mile solution provider, Cadillac Fairview launched CF Delivery, which provides same-day and next-day shipping services for retailers at its shopping centers, at competitive rates. These delivery services can be integrated with retailers’ regional distribution centers and other stores. Cadillac Fairview’s partnership with ReturnBear enables customers to return items from multiple retailers to a drop-off location, enhancing convenience for customers and reducing returns processing costs for retailers.

Additionally, Simon Property Group’s Simon Search tool encourages omnichannel shopping by assisting consumers in discovering products online to purchase in-store. It enables consumers to identify product availability among its malls, providing mall inventory data in real time.

Simon Property Group has also brought its outlets online via an off-price marketplace, encouraging greater omnichannel shopping on the Shop Premium Outlets (SPO) platform. For customers, SPO brings thousands of brands online and in one place, creating a convenient shopping experience. For brands, SPO provides access to 35 million online shoppers and 2 billion in-store shoppers globally, according to the company. SPO announced a new partnership with Tmall Global (the cross-border e-commerce marketplace from Chinese e-commerce giant Alibaba) in late October 2022. The partnership brought SPO’s shops and inventory at Woodbury Commons online just in time for the Singles’ Day global e-commerce festival in November.

The Tmall Global activation event at Woodbury Commons for Singles’ Day 2022
Source: Coresight Research

 

In November 2022, Simon Property Group announced a partnership with Leap, an intelligent retail platform providing data analytics to enhance omnichannel operations. The two parties aim to provide support for new retailers and DNVBs entering the brick-and-mortar space by providing value-added services including staffing and point-of-sale solutions. We think the partnership reveals Simon Property Group’s investment in bringing DNVBs to physical locations and furthering its omnichannel capabilities.

What We Think

Top-tier malls are outperforming the average mall in terms of revenues, occupancy rates and foot traffic. Physical retail, in combination with e-commerce, has the potential to produce a halo effect for brands that can drive sales, reduce customer acquisition costs, improve margins and meet evolving consumer demand. We expect that the rise of both retailers’ and mall operators’ omnichannel strategies and investments will disproportionately benefit the future growth of top-tier malls.

Implications for Brands/Retailers

• Establishing a mall presence alongside e-commerce strategies can help brands and retailers boost sales and drive down customer acquisition costs.
• When opening a new physical location, brands should consider the profiles of the mall and its tenants to tap the benefits of brand synergy, such as increased foot traffic.
• Brands and retailers should align themselves with mall operators with the financial resources to reinvest in their assets.

Implications for Real Estate Firms

• Significant financial resources give top-tier mall owners an advantage over their lower-tier peers in reimagining and renovating their properties. This helps attract new tenants as well as surprise and delight the consumer.
• Mall operators can provide resources to provide consumers with better access to product discovery and visibility into offline inventory, enabling them to cross-shop tenant retailers—driving sales and positively influencing occupancy rates by appealing to potential tenants.
• We expect the mall to remain an important retail format—especially top-tier malls, which have already seen a recovery in occupancy rates from pandemic-impacted 2020 and 2021. Reflecting this, top-tier malls saw strong earnings per square foot in 2022—and this suggests potential for mall operators to push rent increases in the years to come.

Implications for Technology Vendors

• There are opportunities for technology vendors to partner with mall owners and retailers to help reduce friction in brick-and-mortar locations, enhance the offline shopping experience and provide a more seamless omnichannel experience.