Thursday, April 9, 2015

Why are Shopping Malls dying?

The modern world's first shopping mall is the Southdale Shopping Center, Edina, Minnesota. In less than seven decades from Southdale's grand retail inauguration, you probably have more than one gigantic virtual shopping mall in your hand. With cash on delivery at your doorstep and a try-it-and-return-it-if-you-don't-like-it money back guarantee.

What is the future of shopping malls and their retailer occupants in such a quick changing global scene?

It is a diverse and informed world today, so instead of brooding or speculating on the future of shopping malls, its best to listen to what some folks have to say.

Lets begin with this tweet;
Over two years ago, we had written about stores vs. websites: where are retailers putting their money, and the shift to e-commerce was in-the-face even then. It seems things have progressed significantly on that front as I write this post today.

In the Forbes story, Jose Alvarez and Rajiv Lal, authors of the new book Retail Revolution, are asked some direct and relevant questions. Here are some critical excerpts I came away with;

The threat to shopping malls from e-commerce is real after all

Jose Alvarez, when asked by Forbes about the future of shopping malls says 'Ecommerce has significant implications for the current conception of the mall. We are seeing that traffic is down, so cross selling and upselling are down, impulse buying is down, therefore basket size is down—so everybody in the mall is affected by traffic being down. If you have two or three major traffic-driving tenants in trouble, this affects the entire mall. This then creates a domino effect in the entire community in terms of tax base, employment, and blight.'

Clarifying our recurring fears about shopping malls, Alvarez adds that 'for the longest time nobody thought malls would be seriously hurt by ecommerce but now we have enough evidence to believe that the tsunami is actually coming. If you are not careful about thinking through the implications, you will be caught by surprise in many ways.

When asked about a lot of shopping malls which are doing well, Alvarez is of the opinion that 'some you see succeeding are experience-based malls, ones that have restaurants, movie theaters, and other sources of entertainment or services. The other place where you are seeing malls thrive is at the high end. The luxury malls, what the industry calls A-class malls, are doing very, very well. It's the B- and C-class malls that are in trouble. These malls are targeting the income-constrained middle- to lower-middle class consumers, and that's really where the problem lies.'

The food space is probably the most vulnerable among all right now

When asked which retail segments are the most vulnerable to this e-commerce tsunami forecast, Rajiv Lal says, 'I think changes in consumer behavior are going to make the food space more vulnerable in the next five years. There is going to be enormous change, both because of the way people eat and because new models are starting to come into the equation that will erode the brick-and-mortar business.'

Lal also cites the London example - 'You see the shakeout happening in London already, where more than 10 percent of sales are online. Five years ago people would have said Tesco was impervious. But now they are in trouble and part of the problem is that ecommerce has become more significant.'

Here is some recent retail news from North Korea;

But is e-commerce the only real threat to shopping malls in India and across the world?

Nope. Sample some of these views.
In this NY Times articles [The economics and nostalgia of dead malls], Mark Hinshaw, a Seattle architect, urban planner and author bluntly puts it out - 'I have no doubt some malls will survive, but major segments of our society have gotten sick of them [shopping malls].'

One factor everyone blames for the decline of malls is online shopping. But e-commerce is really having only a small effect, experts say. Less than 10 percent of retail sales take place online, and those sales tend to hit big-box stores harder, rather than the fashion chains and other specialty retailers in enclosed malls. Plus, over time I have seen some categories dying on the whole. With Music World in Kolkata, India downing their shutters for good, one begins to wonder if a giant new book/ music/ furniture store will ever open anywhere again, let alone in a shopping mall.

Online shopping portals don't appear to be the only threat to conventional shopping malls.

Instead, the fundamental problem for malls is a glut of stores in many parts of the country, the result of a long boom in building (poorly planned? mindless?) retail space of all kinds. 

Are we extremely over-retailed?

NY Times reader MSW (some people just use these initials so I am reproducing them as it is) from Naples, Maine hits the nail on the head with this little anecdote about how most malls came, went and took away a lot of happiness with them -

'Good riddance to them. A small and hastily built enclosed mall on cheap land on the outskirts of my family's hometown opened some years ago. It decimated the downtown retail precinct. Within 24 months, 95% of established retail in the town centre had gone. Today, the mall is closed, the town center is sputtering and nearly everyone drives 40 miles to the nearest city for basics. Its difficult to imagine anything that malls have contributed to society and culture, but sadly the evidence of what their presence helped to destroyed is plentiful.'

Dan Frazier from Flagstaff, Arizona points us towards another factor, slowing down business at shopping centers today;

'I should say something about Wal-Mart. It seems obvious that Wal-Mart (and a few other big box stores) have contributed to the decline of malls. Wal-Mart is where many non-affluent people now go to shop.'

If you are a mall developer/ retail center owner, Bill from New Jersey has some feedback for you.

'Now if you are a mall owner you might think "OK, I need to change my store mix - maybe a Costco or Target is a better anchor than JC Penney". However you go back with the lease to Macy's/Sears and realize you need them to consent - and why would they agree to have a stronger competitor? So the thing that gave you leverage in the early days - long term department store leases - is now the albatross around your neck.'

What is going to make the next successful shopping mall?

The thinking man's notion out there is that we need to create more integrated, diverse public squares, accessible by mass transit, where shopping is one part of the whole, not the entirety.

Living, breathing cities which are destinations for recreation and essentials must keep themselves community focused and also leave room for agriculture and wildlife. Maybe then, people, especially children wouldn't spend the formative years of their lives walking around in shopping malls. Maybe they would start reading again or hanging out at libraries or at one of the many beautiful museums that our country is blessed with.

California resident MS shares an amazing first hand example on a news comment feed I read and bookmarked in the past. It must be pressed into service now;

MS says, 'I've lived within walking distance of two malls, both of which still exist. However, one is just surviving while the other one thrives. How? 

The successful mall really integrated itself into the community. Sure, it has some usual chains such as Pier 1 Imports and Dress Barn but the mall management also saved some space for specialty local retailers as well as community-oriented activities -- including a within-mall library branch, mini city hall/ police dept, post office, DMV, and community room that local groups can rent. 

Add a Saturday Game Night [IPL/ Soccer League/ Formula 1] sponsored by local sports stores and stage for live free music several times a week and this adds up to a mall that is often packed. All these activities draw shoppers and dollars.

That to me sounds like the mantra for shopping center success.

But to some like Jon, from Seattle, all worried sounding blog posts like this one aren't all that necessary.

'So its 2014 and there's a glut of mismanaged, out-of-the-way located properties littered with tired brands that no one's going to and now they're closing and being torn down and this means something? Come on.. its just business not the the story of our lives. Unless you happen to live in a mall.'

Now that cracks me up with laughter.


About the author
Rahul Mishra is a real estate professional who started his life as a salesman, selling homes in the city of Kolkata since 2001. He worked pan India in real estate organisations like MMG Realty, Bengal Shrachi, The Phoenix Mills and The Space Group before helping co found Pillars with a single objective - To make real estate easy!

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There is one more comment I came across and I would like to keep it outside the jurisdiction of this post. However, it deserves a place here I think. It is one of the most relevant and apt descriptions of our reckless behaviour.

Over to Greenie from Vermont. 4th January 2015 on NY Times.

'Maybe we're just all shopped out? Between the gazillions of storage units filled to the rafters, the garages filled with everything but cars, basements, attics and extra bedrooms stuffed to the gills, maybe we've finally got enough stuff?

Whenever I take excess clothing or household goods to the thrift store or books to the library for their book sale, I'm shocked at just how much stuff we Americans discard. And that doesn't include yard sales, eBay, Craigslist and the stuff that's just dumped in trash bags.

So perhaps we should recognize that we had way too much retail; still do really. Shopping isn't a hobby (or shouldn't be); it's just a means to acquire goods needed for ones household. So if most Americans, either by necessity due to lower incomes, or just running out of a place to stash more stuff, cut back on their shopping, that will result in a need for less retail. 

The writing is on the wall.'