As many as 30% of malls will need to close due to the oversaturation of shopping centers in the U.S., estimates Coresight Research. But the need to reduce significant square footage isn’t all bad news. While more than 1,100 department stores are set to close between 2018 and 2023, mall operators can secure future success by:
- Focusing on potential “anchor” replacements, but not in the form of large format stores;
- Prioritizing high-end dining and experiences to cater to future generations of shoppers; and
- Embracing the concepts of “destination centers” and “retaildential” complexes.
While it’s true that many malls are suffering and may close, others are finding new ways to attract more shoppers. Malls range in grades, from A++ to D. High-performing Class A malls constitute only 20% of the market, yet represent 72% of total mall sales, according to data from Green Street Advisors. These “A” malls have experienced double-digit sales growth since 2012, Coresight reported.
Within “A” malls, occupancies remain in the high 90% range, said Michael Brown, a partner in the retail practice of A.T. Kearney, and author of the report The Future of Shopping Centers. For the most part, those malls will be safe from the expected 30% of malls anticipated to close. But with so many department store closures on the horizon, there will still be spaces opening up, even at some of the top-performing malls.
“We believe closures will be on such a scale as to suggest that many malls will see an average of one anchor-store closure by 2023,” said Deborah Weinswig, Founder and CEO of Coresight Research in an interview with Retail TouchPoints. “However, that average assumes that store closings will be evenly distributed, which we do not expect them to be. Bankruptcies such as Bon-Ton’s will impact all types of locations indiscriminately, but surviving department stores will implement closure programs selectively. Those programs are likely to have a bigger impact on lower-traffic regional malls with lower sales densities than on premium malls — although retailers may opt to reduce the size of their expensive flagships, too.”
Letting Go Of The Outdated ’Anchor’ Concept
Mall operators have plenty of options to replace anchor department stores and apparel retailers, adding space for events and pop-up stores, grocery stores, smaller format stores and even coworking spaces. These locations can be much smaller than the large anchors that occupied the spaces for decades.
“Most of the retailers we see that are anchors — and I literally mean anchors — they’re not driving traffic and they’re holding down the mall,” said Ken Morris, Principal at Boston Retail Partners. “They didn’t pivot to online sales right away and were late to the game. Those are the people that are anchoring a lot of the failing malls, especially in the C and D class malls.”
Morris highlighted the Apple store as a retail environment that modern retailers should strive to copy in some ways, particularly if they desire attention from mall operators.
“There’s something for everyone [at the Apple store], regardless of if you’re six or seven years old, or 70 years old,” Morris said. “It’s an event. It’s theater, and the reality is that’s going to draw people all of the time.”
As Millennial Buying Power Matures, Mall Operators Must Prioritize Dining, Experiences
With Millennial buying power expected to reach a $5 trillion maturity level by 2023, as estimated by Coresight, malls must find ways to accommodate these consumers with more than just Apple stores. Millennials consume most of their meals in restaurants, at approximately 30% more than any other generation. To attract this group, malls are expected to add 15% to 20% more dining space within malls, according to A.T. Kearney.
“We’re seeing high-end food courts bringing in unique and localized vendors as opposed to national chains,” Brown said in an interview with Retail TouchPoints. “We’re also seeing full-service restaurants, steakhouses, dine-in movie theaters. There’s a lot of transition beyond the food court to true places where you can go spend the evening with your family.”
Weinswig highlighted three major implications of the Millennial consumer’s matured buying power. Millennials will:
- Fuel cyclical demand for value retailers, as younger consumers tend to have high expectations but skinny wallets. These shoppers often are weighed down in student debt and have less job security;
- Support online retailers’ moves into brick-and-mortar formats, leading e-Commerce brands to perhaps take their presence to malls. “The resonance that brands such as Indochino menswear, Allbirds footwear, Fabletics athleisurewear and Glossier beauty products appear to enjoy with Millennials is likely to support demand for the physical stores these brands are opening,” said Weinswig; and
- Continue to prioritize quality experiences over product ownership, underpinning the shift from retail to services in mall spaces. Millennials and Gen Zers will drive the shift in spending from discretionary goods to discretionary services.
Simon, Westfield, Arcade Providence Give Preview Of Destination Centers, ‘Retaildential’ Complexes
As more square footage in malls opens up, some operators are re-imagining their spaces to become entertainment destinations, or in some cases, “retaildential,” which translates to residential offerings within the mall.
“The best-invested shopping centers are already becoming destinations for entertainment, satisfying Millennials’ appetite for experiences while also catering to demand for family entertainment,” Weinswig said. “Centers are bringing in aquariums, bowling alleys, movie theaters, virtual reality experiences, gaming formats, indoor skydiving and children’s entertainment formats such as Kidzania, Legoland and Crayola Experience.”
To transform various properties and assure that they stay relevant with these changes, Simon Property Group is investing $4 billion in order to create value and drive footfall at its properties. In suburban Denver, Simon is building an experience center in the form of the 328,000-square-foot Denver Premium Outlets, designed to attract visitors who prefer the outdoor lifestyle. The space will feature amenities such as an outdoor village and views of the Rocky Mountains.
For another project, Simon is developing a residential area, hotel and office tower at the King of Prussia Mall near Philadelphia.
Other mall operators are leveraging the “retaildential” model that Simon is following. For example, Westfield Corp. is seeking approval to level the Promenade mall built in 1973 and start anew. In late 2016, Westfield unveiled plans to build residences, offices, two hotels and a concert venue, along with a string of boutiques and restaurants. A web site pitching the proposal depicts tree-lined avenues, a central park and courtyards.
The $1.5-billion project, if approved, will connect to Westfield’s two adjacent properties — the indoor Topanga mall and the Village, a $350 million outdoor shopping center that opened two years ago.
PREIT, which operates a smaller portfolio of malls primarily in the Northeastern U.S., revealed at the 2018 ICSC RECon convention earlier this month that it would be looking to add as many as 7,000 residential units and 3,000 hotel units across a dozen mall properties in the coming years.
Even the oldest indoor shopping mall in the U.S., located in Providence, R.I., completed renovations of its own in 2014 to fit into the “retaildential” model. The Arcade Providence, known as Westminster Arcade when it opened in 1828, was renovated into 48 “micro-apartments” and an assortment of businesses after the shopping center closed in 2008. Northeast Collaborative Architects gave the complex a second wind, converting the top two floors into apartments and the bottom floor into commercial space for retailers.
Under Construction: American Dream Malls Set To Be The Mega-Malls Of The Future
While mall operators may consider the “retaildential” idea as a way to draw consumers, others are thinking even bigger. Canadian real estate developer Triple Five Group is building two mega-malls known as “American Dream” complexes in Northern New Jersey and Miami. The New Jersey complex, called American Dream Meadowlands, is on target for a March 2019 opening, while the Miami-Dade County Council recently approved the $4 billion Miami venue for construction.
“That particular New Jersey property is going to offer a Nickelodeon experience, it’s got an indoor ski slope and potentially an ice skating rink,” Brown said. “These are the big bold centers where people will travel multiple hours to spend the day there. We think they play a very important role in the consumer engagement landscape going forward. Not every space can be one of those, but the learnings that have to be brought back from these facilities are ‘What are the unique experiences that I can bring to my property that would draw traffic to it and allow all of my tenants to feed off that property?’”