The enormous size of the classic US suburban mall may evoke images of the prehistoric creatures that once roamed the Earth and, unfortunately for the retail centers, their similarities with dinosaurs don’t end with mere girth right now. While not quite ready to bury the mall just yet, Dan Stanek, EVP at consumerism think- tank Retail Forward – whose keynote speech at Licensing Show in June contained a slide ominously titled ‘The Death of the Mall’ – says malls as we once knew them are suffering. And as mass-market retail channels continue to tighten, there’s no doubt that anyone involved in the consumer products industry should be paying attention.
Once the center of suburban culture, a ubiquitous sprawling space that tied together commerce, social interaction and leisure, the modern mall is transforming and, in some cases, disappearing from the North American retail climate. The category taking the hardest hit right now is what’s known as the super-regional shopping center – a minimum 750,000-square-foot complex built around three or four major long-term tenants (usually department stores). For the most part, these malls exceed one million square feet, with their major retail anchors accounting for approximately 100,000 square feet apiece.
Mall culture, says Stanek, is definitely being dealt ‘a severe body blow at the moment.’ And the numbers bear him out. According to stats crunchers at Bethesda, Maryland-based CoStar Group – a provider of commercial property research and information services – vacancy rates have skyrocketed over the past three years. In Q1 2006 vacancies at US super-regional shopping centers stood at 1.8% of available space with the average monthly rental costing US$25.83 per square foot. Just three years later, with help from the general economic downturn, total vacancies are hovering at 3.7% and the price per square foot has dropped to US$17.00 – roughly a 30% decrease in value.
Additionally, new mall construction rates nosedived this past year. They crested in the second quarter of 2007 with 2,205,333- square-feet-worth of stores, food courts and theaters being erected around North America. But by mid-2009, newly built facilities occupied just 323,609 square feet across the continent.
Stanek sees the evolution as a socio-economic one. ‘Part of the issue is that the mall has become a lot less convenient for shoppers than alternatives like strip centers, power strips and various smaller specialty stores,’ he says. These centers offer the same stores and outlets that are featured in malls, but with parking and access right outside the front door.
The accepted MO of any major shopping center is to draw the customers in with one of the major anchor stores and then encourage consumers to wander through a variety of smaller stores, spending money along the way. This approach, however, no longer appeals to an increasingly older demographic that has designated its limited shopping time to specific goals, not general ones.
‘The mall is moving to the consumer instead of the consumer coming to the mall,’ says Stanek. ‘It becomes a convenience issue, the whole format of the mall is designed to be inconvenient, and if you are a purposeful or direct shopper it doesn’t work.’ Moreover, the most inveterate mall-goers, kids and teens, are still heading down to their local shopping center, but numbers are down from a few years ago.
‘Young, more affluent consumers are still going to the malls more than the older shoppers,’ admits Stanek. But he contends the overall slump in sales for mall-based retailers right now is indicative of the fact that even younger demos are eschewing their time-honored practice of hanging at the mall.
The shift in culture has already had real economic effects. In April, General Growth Properties, a massive mall owner with 3,500 employees and revenues upwards of US$3 billion, filed for the largest real estate bankruptcy in US history. GGP was just the biggest example of an industry that is scrambling to survive.
Mall proprietors across North America have taken the hint and are now re-examining their business models. Stanek sees malls looking to transform their spaces away from the traditional retail centers. ‘You see more service-oriented places now,’ he says. ‘Teeth whitening, Botox places. Basically the landlords will offer really good deals to fill the space.’
Erin Hershkowitz, senior media relations specialist for the International Council of Shopping Centers, agrees. ‘Centers are looking for new and creative ways to fill those spaces,’ she says. ‘Right now there aren’t a ton of retailers with expansion plans, so the centers are coming up with shorter-term leases and other draws to fill the space.’
With mall owners increasingly willing to look at low-cost short-term leases, expect malls this fall to feature more temporary back-to-school shops and Halloween specialty stores. John D. Johnston, retail development manager for Atlantic Canada-based Northorp Group, is all too familiar with the short-term leases. He says in addition to the traditional Christmas-specialty store, he expects the group’s prime property to feature both Halloween and back-to-school temp stores.
‘It’s not the ideal thing we want to talk about,’ Johnston says. ‘We don’t like doing it but we are back to supply and demand. The vacancy rates give [tenants] some pretty good leverage. When they look at ways of reducing risk, one of their risks is signing a long-term deal.’
While many major mall owners were hesitant to discuss the situation, Tony Grossi, senior EVP and COO of Macerich – a California-based property-management group with more than 76-million-square-feet of mall space throughout 45 states – obliged. ‘It’s been a part of our business and we do it in a good economy and a bad economy,’ he says. ‘We aren’t doing anything unusual in this environment.’
However, Grossi did allow that leases are becoming shorter in nature. ‘We do shorter-term deals now,’ he says. ‘If you follow the regional mall sectors you know that vacancies are edging up.’
While pop-up stores are nothing new on the scene (for example Target’s Bullseye Bodega concept bowed in four different New York City locations for four days in 2008), the rate and the frequency of short-term leasing will almost certainly increase.
Interestingly, Stanek believes the situation has created an opportunity for a new player to enter the retail environment. ‘It wouldn’t surprise me to see some manufacturers do a pop-up vehicle,’ he says. ‘There has been a lot of talk from manufacturers that want to get in and start retailing because the space is so affordable now.’
Marty Brochstein, SVP of industry relations at licensing org LIMA, disagrees. He acknowledges leases might be cheap and space plentiful, but says he’d be surprised to see many manufacturers jumping into the retail environment. ‘The logical thing might be to take [the goods] right to consumers,’ he says. ‘But, it is a different skill set. It requires significant investment and not everyone is good at it.’
And while sensitive to the struggles of traditional malls, Brochstein doesn’t foresee sales avenues for licensed products simply disappearing alongside the behemoth shopping centers. ‘I don’t think we are dealing with a dearth of exposure points for licensed goods and properties by any means,’ he says. ‘They are just migrating to a different form.’