- A Third of American Malls Will Close Soon, Money, May 12, 2016
- A new report signals disaster for American shopping malls, Business Insider, April 25, 2016
- The Decline of the U.S. Shopping Mall, deflation.com, February 1, 2017
- Mall Owners Rush to Get Out of the Mall Business, The Wall Street Journal, January 24, 2017
- Mall Investors Are Set to Lose Billions as America’s Retail Gloom Deepens, Fortune, October 21, 2016
The list is endless, but you get the point. Enclosed malls are generally in decline. Department store closings already announced will continue well beyond this year and it is a virtual certainty that more will be added to the hit list. We’ve also seen a slew of bankruptcies by mall-based teens and juniors apparel chains that have been impacted by several factors including the growth of fast fashion retailers, the rise of Amazon apparel sales, and a broad shift in shopping patterns by Millennials who have exhibited a propensity to shop online and not at the mall. All of this is taking a toll on occupancy levels, often requiring landlords of B and C malls to back-fill with temporary tenants and mom-and-pops.
But how bad is it? One perspective may come from mall productivity, or sales per square foot of comparable tenants (those that were open at least a year). Using International Council of Shopping Centers (ICSC) data back to 1996, we compared the average annual mall productivity level of New England shopping centers to that of the total US inventory, to get an historical view of how malls have been performing from their heyday until now.
In 2016, average mall productivity in New England was $482/SF. This reflects a 13.1% increase from the 1996 level of $426/SF. Comparatively, the US level increased 26.6% to a current level of $467/SF. None of this should be any surprise. However, when we evaluate these levels in constant 1996 dollars, productivity growth has been, frankly, quite paltry. Using the average annual inflation rate of 2.18% between 1996 and 2016, had the New England productivity level simply been able to keep pace with inflation, we would see mall productivity levels today of $654/SF today, while the US would average $567/SF. The table below details the 20-year trend in mall productivity in New England and in the US:
What the table doesn’t address is the fact that comp stores are inevitably changing. The overall quality of stores included in the average mall productivity of 1996, or even 2006, is a far cry from the comp store mix in 2016. Many of the highly productive specialty stores that preferred mall shop space a couple of decades ago have relocated to lifestyle centers as new development occurred. Many others have simply gone out of business. We also have had anchor stores replaced by new anchors, a trend which allowed discounters into the malls for the first time.
And I would be remiss if I didn’t mention the “A” word. As a matter of fact, to coincide with our 20-year review, Amazon’s unbroken 20-year streak of double-digit revenue growth shows no sign of slowing this year, following its announcement that first-quarter sales were up (better find a chair) 22.6%! Continuing in the same vein, traditional brick-and-mortar retailers are shifting much of their capex away from store expansion and into e-commerce efforts, which brings future utilization of comp store sales as a measurement of performance into question, not just for malls but for the retailers themselves.
The bottom line here is: the mall business, just like the rest of the retail world, isn’t getting better.
Bob Sheehan, Vice President of Research
Eastern MA/Greater Boston Retail Real Estate Trends & Analysis 2017
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