It’s become a recycled headline that we see constantly: The death of the American mall is imminent, as we see malls closing all over the country. While some experts point out that brick and mortar retail is still relatively healthy, we’re seeing signs of pretty dramatic disruption to the industry.
The ghost of Christmas past
Spooky empty malls are the subject of much amateur photography, as they lay in ruins following years of decline. As you might expect, the number of abandoned malls is growing as anchor retailers struggle to keep their doors open. These anchors are the larger stores in most malls, such as Macy’s and Sears, both of which recently announced the closure of hundreds of stores.
If you know anything about mall economics, you’re probably already aware that if you lose an anchor retailer, traffic falls, and leads to a death spiral that ends with the demise of the entire mall.
Investors eat humble pie
Right now, we’re seeing malls die because of the shift to online retail and the disappearance of these anchor stores. It’s a cycle that’s culling malls across the country. Malls like the Fort Steuben Mall in Ohio are in the process of losing two of their anchors (Macy’s and Sears), which amount to 37 percent of the property’s leasable space.
Malls that lose anchors also decline precipitously in value once their largest stores leave. We’re seeing malls that were once worth hundreds of millions of dollars auctioned off for pennies on the dollar. For example, The Galleria at Pittsburgh Mills was worth almost $200 million dollars before the recession. Today, it’s half empty and appraised at about $11 million dollars.
Retail isn’t shrinking, it’s changing
While Amazon is capturing an ever-growing share of consumer spending, there are many retailers that are booming in spite of the shift to digital. Brick and mortar retailers that are experiencing success are mostly broken down into two categories: Low price stores and high end stores.
The disappearing middle class in America means that most Americans are turning to “off-price channel stores” like Ross, Burlington Coat Factory and T.J. Maxx. These stores are usually stand alone big box buildings that aren’t traditionally part of a typical American mall, and they’re quickly stealing market share from their mid-priced competitors.
Why high-end stores are booming as well is pretty obvious. Simply, the wealthy have more disposable income than ever to splurge on luxurious items.
This sudden bifurcation of American retail is cannibalizing the mid-market, and is merely a reflection of modern economic realities in today’s America. The new economic paradigm leaves most consumers with less disposable income than they had in the past.
Mall of the past, housing of the future
The market forces that are killing American malls are likely to accelerate in coming years. As we face a growing number of abandoned malls that become carcasses of digital capitalism, urban planners will have to decide how cities can repurpose them.
The death of the great American mall comes at a time when we face housing shortages in many cities across the country. It also coincides with a growing trend of people who want (or are forced) into “shoebox living.” Therefore, the dead mall in a city near you could potentially be repurposed into the affordable housing of the future.
Takeaway: The economy is changing, buckle up
Let’s be honest: Department stores are terrible, and are ripe for disruption. The old American mall feels out-of-date, and is out of sync with a generation that craves authentic walkable cities–not a climatized maze of 1980s architectural nonsense.
It’s not just Amazon. The economy is being transformed by digital disruption and a radical departure from traditional consumer behavior. Millennial consumers are a very different animal than past generations, and will demand a fundamentally different shopping experience than their predecessors.
The economy continues to grow, and technology is steadily changing the rules of the game. The growing number of abandoning malls dotting the landscape will signal the decline of America to some. For people who truly understand our changing world, they know that it demonstrates the vibrancy of our market-driven system as it adapts to the 21st century.
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