The news on the mall front remains depressing at best. Coresight Research, along with many other respected firms, continue to predict as many as 25 percent of the nation’s malls may close over the next three to five years. And there could be even more “if we can’t stop the bleeding,” said Coresight CEO Deborah Weinswig. Currently there are about 1,200+ indoor shopping malls in the U.S.
But there is a silver lining in the dark cloud hanging over malls. Of the malls that make it – mostly the A-class and better B-class malls – they will find more running room as the competition for customers thins out.
Indoor Malls Have a Bad Rap
Ever since the pandemic forced the temporary closing of malls and other nonessential retailers across the country, malls have been at the top of the list of places for people to avoid. As early as February before the national shutdown, nearly 60 percent of consumers surveyed by Coresight said they would avoid malls, shopping centers and other crowded places.
Their fear of malls continues even as malls were allowed to reopen. In a study of 16 top-performing indoor malls, Placer.ai found visits were down 49 percent for the first 11 months of the year. And that trend is likely to continue into next year. The latest IBM consumer survey found four-of-ten American shoppers are going to avoid malls into 2021.
Open-air malls have been the lone exception to the shopping desert that indoor malls are becoming. While footfall remains depressed for both types of malls, outdoor malls, particularly outlet malls, have recovered faster, according to Ethan Chernofsky, vice president of Placer.ai. “Outlet malls offer a pandemic-friendly outdoor setting and a value orientation that aligns perfectly with a period of economic uncertainty,” he shares.
All of this begs the question of whether it Is really safer to shop at a Walmart, Target, Home Depot, Lowe’s or your local grocery store than it is at a mall? With their multi-story open spaces, broad corridors and rigorous new hygiene protocols, one could argue that malls are actually safer than shopping in the typical big-box store.
But we all know the consumer’s perception defines our business reality. To survive and thrive, indoor malls need a radical makeover to convince people that they are safe and desirable places to go.
Indoor malls have a lot of built-in advantages compared to outdoor malls or even Main Streets. They are located in prime real estate along major thoroughfares and serviced by public transportation. Being indoors, they are immune to weather, so a mall could host a street fair every weekend, rain or shine.
Further, Placer.ai data shows indoor malls have significantly longer visit times compared with outdoor malls, and shoppers are willing to travel longer distances to get there. “It shows people’s intent to have an experience. In their peaks, indoor malls can outperform outdoor centers,” Chernofsky explains. “It’s a place to find a lot of things in one spot that other formats can’t necessarily match.”
On the other hand, indoor malls have become overly dependent on department store anchors, which have weighed down their performance rather than lift it.
“There is a disconnect between department store performance and in-line performance in enclosed malls,” explains Ben Witten, VP of Finance & Asset Management for Trademark Property, which owns about 20 shopping centers and malls throughout the country. “On a macro level, department store sales have declined year-over-year while in-line comp sales have grown simultaneously.”
Repurposing those multi-story department store anchor spaces left vacant as Sears, Bon Ton, Macy’s, Dillard’s and J.C. Penney abandon ship is a major challenge, but one that mall owners need to act on fast.
For example, my local mall has had two of its four anchor department stores left vacant going on two years. Owner Brookfield Property Partners has yet to figure out what to do with that space, but it hurts every tenant in the mall and depresses visitors visiting the mall.
The key to making over malls is to think outside of the box to create a place where people can do more things than just shop and eat. To do that, Witten advises malls to focus on the needs and interests of the local community.
“People are tired of the commoditized sameness that is the stigma of too many malls. We try to focus on what’s local that will be unique to that market,” he says.
Rather than shrinking, the opportunities for malls is growing, Chernofsky explains, as long as they concentrate on filling gaps in the regional market.
“With mall visitors wanting to do more than shop and new brands across sectors looking for offline homes, malls have an opportunity to think about transforming struggling retail spaces into offices, schools, fitness centers, medical centers, hotels and more,” he shares.
These new service tenants can expand both customer reach and extend business throughout the week and in off-hours since traditional malls tend to attract the most customers on weekends. In addition, malls can invite local community services, like libraries, museums, and even post offices, to replicate the attractions on Main Street.
And that also can include a residential component. Witten shares that capital markets favor the valuation of multi-family residential over retail.
“After you’ve spent time building the mall amenity base and getting the right restaurants and tenant mix, if you can leverage that and build an apartment project, it can drive to the top of the market in rent,” he says. “And flip it around. The mall actually adds a lot of value for the apartments and opens up opportunities for the mall to have essential services for the residents, like groceries and drug stores.”
Reimagining Job Responsibilities
To become vital again to their local communities, malls must become centers where people can come and have experiences. And it needn’t be just over-the-top amusement parks or multiplex movie theaters. Week-in, week-out, malls can give their guests something new to see and experience.
This elevates the role of the experience manager from a mid-management marketing function to that at least equal to the leasing manager. Trademark Property’s Chuck Steelman, who works side-by-side with Witten, has such a role. As vice president of experience programming, he and his group are responsible for creating customer experiences at all of its properties.
They are tasked with creating events and exhibits that elevate the ordinary trip to the mall into a meaningful experience. “These positions are extremely valuable,” he shares, adding that his background in the fashion industry, corporate special events and public relations, prepared him for his pivotal role with Trademark.
“These positions are extremely valuable. You have to be creative and always able to adapt, like in the fashion industry where things are always changing. You have to be on top of the trends shaping the world around you,” he adds.
Technology has changed the way malls must market, but it has also become a vital tool Steelman uses to create experiences for this social-distance holiday season. This year’s Galleria Dallas holiday experience included online scheduled appointments with Santa where parents entered their child’s name and what’s top on his or her gift list. This created an even more personal experience than before since Santa could greet them by name and talk about what they asked for.
Steelman and team also leaned into technology to create an immersive experience call the SNOWDAY exhibit where guests walk into designer sets, almost like they stepped into the holiday window displays of a great department store. Inside they can snap a picture and post it on social media.
This year’s extraordinary situation stretched his team’s creativity and forced changes that ultimately will be added to the holiday mix in the future. “The thing about retail is it has to keep evolving. The way we used to do things 10 years ago doesn’t work anymore. Technology has changed everything,” Steelman says, and teases, “We have some really innovative immersive experiential things planned for 2021 that will involve a lot of technology, and it won’t be just Christmas.”
Imagining a “Better Normal”
2020 has been an incredible year of disruption throughout the entire retail landscape. Perhaps no sector has been as negatively impacted as indoor malls. For years, malls have been ready for a reboot. If mall owners and operators were dragging their heels before this, they certainly can’t afford to do so any longer.
Sadly nearly 200 malls may already be past the point of no return. A recent study by Barclays Capital found that between 15-to-17 percent of U.S. malls may no longer be “viable as shopping centers.” Further, one-third of the industry’s loans are now in default, as the vacancy rate soars. In September, one out of five U.S. malls had a vacancy rate of 28 percent, which put them in the “non-viability danger zone.” This is up from only eight percent last year.
Forget about some return to normal for malls. We are more than 20 years past that point. For malls to survive another 20 years, they need to imagine a “better normal,” which will be dramatically different from the past. Mall owners need to embrace the change.
Note: The article first appeared in The Robin Report.