Major shifts in the demographics and socio-economic composite of consumers have rapidly transformed the definition of traditional shopping and retail over the last decade. As Michael Glenn, mall manager at Stony Point in Richmond recently told the Richmond-Times Dispatch, “Retail is no longer a brick and mortar business; it is a brick and mobile business.” With handheld technology that allows a consumer to procure a custom-curated sweater made from the undercoat of an endangered llama and a three course meal in one swipe, the clicks vs. bricks conversation has generated a lot of debate over how to prepare and re-strategize the physical retail landscape.
The PLACES Team took a look at which malls and shopping centers are thriving in the post-recession millennial generation, vs. the ones that have failed, examining several components of “A Malls” vs. “B Malls” and their re-development across the country. We analyzed the common characteristics of “A Malls” and their growth, as well as the technology that is changing the face of how we learn about and consume products, services and retail goods.
“Malls Are Dying” Is Not the Whole Story
Overbuilding, a mass recession, the rise of e-commerce, and several big brand retailer bankruptcies have forced landlords and property managers to re-envision a Foot Locker into a health clinic, a Sunglass Hut into mixed-use office space. According to Greenstreet Advisors, nearly 25 enclosed shopping centers around the country have closed since 2010, and another 75 are in danger of failing.
The International Council of Shopping Centers (ICSC) reported that since 1990, when 16 million-square-feet of mall space opened, shopping center building has tailed off, and only one large new mall has opened in the U.S. since 2007. Technology and emerging entertainment alternatives have all subtracted considerable traction from America’s traditional enclosed mall model. But it’s difficult to compare apples to oranges.
A combination of socio-economic forces have revolutionized consumer habits and spending across generations and demographics. The number of individuals living below the poverty line has nearly doubled since the recession in 2008, wiping out a large group of consumers who populated the B and C mall brands. Department stores have experienced rapid consolidation, leaving fewer options for traditional department-style anchor tenants, and discount retailers like T.J. Maxx and Target have replaced J.C. Penney and Macy’s as the popular go-to retailers for home essentials and personal care products. In addition, millennials want a product no one else has. Shoppers want discount, but another portion of them want authentic and luxury. The middle has bottomed out. The Wall Street Journal recently reported that “A Malls” currently make up only 3.5% of malls, yet account for 22% of all value. According to Goldman Sachs 2015 list of top 100 malls in the U.S. 75 percent are home to an Apple store, up from 69 percent in 2014.
Short Hills Mall in New Jersey, considered one of the most high-trafficked, and maximum sales per square foot mall properties in the country, has anchor tenants Bloomingdale’s and Saks Fifth Avenue peddling luxury leather and skin creams to a much higher net worth demographic than the malls in tertiary markets with marginalized retail concepts that can’t compete in a more sophisticated retail scene. “B Malls” are traditionally classified by their location in secondary markets, and the range of $300-500 per square ft. in sales, according to National Real Estate Investor.
Century III Mall, once a bustling shopping hub among suburban Pittsburgh residents, recently closed after being burdened by a 70 percent occupancy rate with sales revenue hovering at $200 per square foot. Highland Mall in Austin, TX, suffered a similar fate with a 61% occupancy rate. So what is to become of all the overbuilt square footage in these shuttered properties?
Mayfield Mall in Silicon Valley was bought by Google, and re-purposed as office space for Google Glass. Hickory Hollow Mall became a satellite campus for Nashville State Community College and opened a practice rink for Nashville’s NHL team. Other properties have morphed into apartment buildings, botanical gardens and medical facilities.
When Madison Marquette stepped in to re-develop and manage Richland Mall in North Central Ohio, they knew they had to meet a growing need within the community beyond just retail. In 2013, Avita Health Systems bought the property, providing a new opportunity for food and other mixed-use concepts in addition to providing on-site jobs. By swapping out old infrastructure for the installation of drop-irrigation tanks, the building was retrofitted for a modern energy management plan. When Avita Health System opened Phase I in December 2014, center traffic increased by 15% with a 3% increase in overall sales, a successful model of a strong re-use development.
Since fewer, if any, retail properties are being developed from the ground-up, existing ones are looking for innovative ways to re-market their square footage, like Highland Mall in Austin, TX, which is being converted into a campus for Austin Community College, complete with classrooms, and a culinary arts center. Springfield Town Center in the densely populated suburbs of Northern Virginia, closed for renovation in 2012, after suffering double-digit revenue losses during the recession. It re-opened in October 2015 with a spa, a children’s lending library and a movie theater with recliner seating, and is being re-positioned to take center stage as a community retail and entertainment destination for surrounding residents and businesses.
Experiential Shopping and the Millennial Market
The rise of the millennial spender and the shift in consumer shopping habits is so complex, the Wall Street Journal has dedicated an entire series in their business section to examining the topic. Retailers’ longstanding model of saturating every market with outposts of their brand has been adapted into creating fewer, but more upscale stores and shopping destinations with a multi-purpose appeal.
Bloomberg News has reported that millennials aren’t that into malls, compared to the previous generation X who grew up in the “mallrat culture” of the 90’s. Developers, therefore, are not only focusing properties around housing, dining and entertainment options, as millennials want to live closer to work and play; but also have to think about how to integrate their merchandising into mobile-friendly marketing concepts that draw shoppers into their physical locations, and not just the screen.
Millennials and the next generation of shoppers desire outdoor spaces and garden rooftops, dining options that are local to their environment, and unique retail they can’t find online or in every chain across America. In losing traditional anchor tenants like Macy’s and J.C. Penney, once the go-to purveyors of appliances, lawn care equipment and towels in every color, developers are reinventing the experiential side of shopping, with on-site programming and events like wine tastings, movie nights, and interactive playgrounds to merge the evolving interests of a more connected than ever population of consumers.