Earlier last week I came across yet another article referring to the “shopping mall crisis.” We’ve all seen them periodically over the past 10 years, and it certainly will not be the last of them. Click here to read the article.
The reason, however, this article caught my attention more than any I’ve read in the past was for one line. According to retail consultant Howard Davidowitz, chairman of Davidowitz & Associates, Inc., a national retail-consulting and investment banking firm, he expects “as many as half of America’s 1,200 shopping malls to fail within the next 15 to 20 years.”
What does this mean for the American retail consumer; the landscape of retail real estate; those retailers whose primary, or sometimes only presence is within the shopping mall; RETAIL BROKERS?
As the article referenced above points out, and I happen to be in agreement, the largest contributing factor to the more recent closures and the ongoing suffering of many of the mid-sized, regional malls is because of the widespread closure of anchors such as JC Penney, Sears, Macy’s, etc. Once one or even two of a malls anchors shut their doors, it often sends an unsettling message to the market, as well the remaining retailers in that mall. New retailers looking at a market for the first time have to inevitably ask, “Why did (insert anchor Tenant here) close?”
Often times, the closure can be easily explained by an overall business initiative like that of Sears or JC Penney, but other times there isn’t one clear explanation. It could be due to relocation, poor sales, or even the deterioration of an entire retail trade area. Again, the message has been sent, and it can create a domino effect. Lost traffic due to one anchor closure puts that much more stress on the other retailers. Often times, the rents don’t justify the location, and stores slowly begin looking for more visible, non-mall locations, or leaving a market altogether.
According to the same article referenced above, of the 1,200 existing shopping malls in the US, 80% are considered healthy with vacancy rates of 10% or less. 80% sounds pretty good, right? Well, that’s down from 94% in 2006, less than 10 years ago. That’s a pretty rapid decline and one we all need to keep an eye on.
Now, I am not in any way proclaiming dooms day or the extinction of the regional mall. Luxury goods anchor retailers such as Nordstrom, Sak’s Fifth Avenue, and Neiman Marcus continue to prosper and will always need an outlet to sell their wares, which means they’ll need large retail boxes with lots of parking. I’m also confident there will always be a significant amount of smaller retailers and restaurants who will inevitably line up to locate in their shadow. The question is: how many Nordstroms or Sak’s or Neimans can the US support? The fact is those retailers have to maintain an air of exclusivity or risk diminishing their brand. They will never compete on price, so high income demographics have to exist in order to support a new store. In other words, the exclamation that half of our malls will be gone in the next two decades is starting to sound pretty reasonable.
So, again back to my question posed above…what does this mean for retail real estate? Mid-size, regional mall landlords have to be the most cognizant and always be thinking ahead of the next cycle. This means thinking outside the box when it comes to their existing assets. This could mean converting boxes to office space, entertainment venues, medical clinics, public services such as libraries…light industrial?? Who knows, the point is to be thinking outside the retail box.
Just a thought to close out with…while we’re all focused daily on finding the hottest new fast casual restaurant or trendy new apparel retailer, I think it would be worthwhile to also spend some time thinking, researching, and talking to individuals outside of our “traditional” retail world…opportunities are on the horizon.
Andrew L. Prater | Broker Associate
Mid-America Real Estate – Wisconsin, L.L.C.
648 N. Plankinton Ave., Suite 264 | Milwaukee, WI 53203
Office: 414.273.4600 | Fax: 414.273.4605 | Direct: 414.390.1404
firstname.lastname@example.org | www.midamericagrp.com