April 11, 2018

Reports of the Death of U.S. Shopping Malls Are Greatly Exaggerated

The shopping mall, for better or worse, is not exclusive to the United States, although the concept arguably was first mass-marketed here, and the U.S. still has more shopping malls than most other countries.

Although there were a handful of others which preceded it, the first generally-acknowledged U.S. suburban shopping mall was the Southdale Center in Edina, Minnesota which opened its doors in 1956.  Victor Gruen, a refugee from Nazi-occupied Austria, envisioned the Southdale Center as a solution to suburban America's lack of public spaces.  Southdale Center still exists as a shopping mall, and as of 2018, its operated by Simon Properties, although its been remodeled and expanded from its original design.  Mr. Gruen designed the original Southdale Center as a fully-enclosed, introverted (meaning one where all of the shops face the inside), multitiered, double-anchor-tenant shopping complex with a garden court under a skylight — and today, virtually every regional shopping mall in America is a fully-enclosed, introverted, multitiered, multiple-anchor-tenant complex with a garden court under a skylight.

Victor Gruen didn't design a building; he designed an archetype that was widely copied.  Other suburban shopping malls may have more than two anchor stores (although as formerly-big department store chains have declined in number, mall operators have been forced to find new uses for large anchor stores once occupied by the likes of Montgomery Ward, Sears as well as various regional department store chains), but the basic idea originated with his concept.

But it was the Canadians (not the Americans) who arguably took the shopping mall concept to the extreme by building what was considered to be the largest enclosed shopping center when it was built known as the West Edmonton Mall [http://www.wem.ca/], and it still retains the title of the largest shopping mall in North America and the tenth largest in the world (along with The Dubai Mall, which ties it in terms of leasable space) by gross leasable area.  It is perhaps not surprising that Canada is its home, as the climate there is often inhospitable (particularly during winter months), making a climate-controlled shopping center there very appealing.  Note that the same also applies to Mall of America, which shares a great deal in common with West Edmonton Mall, including some of the developers.

West Edmonton Mall was the world's largest shopping mall from 1981 until 2004, when it lost that title after several newer shopping malls opened in Asia (including in Turkey, China, the Philippines, the United Arab Emirates, Malaysia, Thailand) and elsewhere usurped the title of biggest.  The same family behind West Edmonton Mall also helped to develop the Mall of America located in Bloomington, Minnesota (in the Minneapolis-St. Paul suburbs) was involved in developing Mall of America (ironically, not very far from the Southdale Center noted above), which currently holds the distinction of being the largest enclosed shopping mall in the United States.  Like its Canadian counterpart, Mall of America also features an indoor theme park and various other attractions aside from shopping.  It also shares the distinction of having some brutally-cold winters, not unlike Edmonton, Canada.

However, this post is about shopping malls generally, so I'll skip talking about Mall of America and discuss West Edmonton Mall instead.  To give you just some idea of just how big Canada's West Edmonton Mall is, that particular shopping mall has more than 800 retail stores, restaurants and services under one roof in the compound, plus parking for more than 20,000 vehicles, and more than 24,000 people are employed at the property.  It also has the largest indoor amusement park in the world, and the largest indoor waterpark in the world all located inside the facility, as well as an indoor ice skating rink.

Alas, the concept of the American mall isn't quite as popular as it was during the mid-1950's when they first started appearing nationwide.  One of the reasons for rapid growth in shopping malls in the late 1960's into the 1970's was continued, widespread growth of the suburbs following World War II and more general prosperity of the era which fueled retail growth in the country overall.  That coincided with construction of Interstate highways across the country, enabling quick access to locales that once were time-consuming to get to.  But since the 1980's, virtually all U.S. prosperity has gone to the top income segment, hence there has been less to fuel growth as there was following World War II.

Indeed, the era of the "big-box" retail stores coincided with the rise of shopping malls (lagging by a few years).  But the same factors that led to growth in U.S. shopping malls were also criticized for decimating traditional downtown retail centers (where they existed; in other places, there were no central business districts to destroy because it was literally undeveloped land in far-out exurbs that had no town centers).  Although big-box retailers like Walmart and Home Depot are frequently criticized (and the companies certainly deserve a share of that criticism), more general suburbanization shares some of the responsibility.  During that time, concentrations of capital spilled out along new, federally-subsidized highways, covered old countryside with a new suburbia, and initially concentrated around highway interchanges.  There were the brand new shopping malls, while in gloomy old downtowns nearby, the streets often became empty and taxes rose along with crime rates.

Indeed, I believe that 1970's singer/songwriter Joni Mitchell (herself a Canadian who was transplanted to Los Angeles' famed Laurel Canyon neighborhood, which was home to many musicians of that era) popularized the idea of how suburbanization had a big downside, with a song she called "Big Yellow Taxi"  in 1971 in which she observed that "They paved paradise to put up a parking lot".  That line from her song is perhaps the most relevant observation for what was going on at the time.  Joni Mitchell maintains a website, and has the song there which can be listened to below, or by visiting https://jonimitchell.com/music/song.cfm?id=13.

At the indoor shopping mall's peak popularity (which some have estimated to be in 1990 based on both occupancy rates for for existing malls and the construction of new shopping malls), the U.S. opened 19 of them. But the U.S. hasn't cut the ribbon on a new, enclosed shopping mall since 2006.  It seems unlikely that more will come anytime soon.  According to The Atlantic, there still were about 1,200 malls in America in 2017. According to Credit Suisse, a Wall Street investment bank, one in four malls are expected to close by 2022. Others forecast that in another decade, there might be about 900 malls remaining in the U.S. That's not quite "the death of malls" as some have called it.  But it is a marked decline, and it seems to be inevitable.

In 2014, PBS featured an interesting segment entitled "The rise and fall of the American shopping mall" which visits a dead mall called "Rolling Acres" in the ailing city of Akron, Ohio as part of the story.  That report can be seen below, or by visiting http://www.pbs.org/video/2365378735/:

While online commerce is cited in many poorly-researched articles and in news stories as the main reason, a more important reason is there are simply far too many malls in the U.S. to remain commercially viable (at least as retail shopping centers).  The number of malls in the U.S. grew more than twice as fast as the population did between 1970 and 2015, according to Cowen and Company’s research analysts. By one measure of consumerist plentitude — shopping center "gross leasable area" — the U.S. still has 40% more shopping space per capita than Canada, five times more the the U.K., and 10 times more than Germany.  Of course, Europe has maintained its city centers, whereas in many parts of the U.S. as suburbs without existing retail centers grew more rapidly, more traditional town centers (referred to as "downtown") struggled, often due to limited space for modern retailers to operate.

While some shopping malls continue to thrive (particularly those located in convenient and/or affluent areas, or those targeting fast-growing populations such as Hispanics or Asian-Americans), the traditional model will nevertheless be impacted by the closure or downsizing of some traditional retail outlets.  Sears, Kmart, Barnes & Noble, Toys R Us, Macy’s and others are all downsizing as newer, more nimble retailers including Amazon capture more and more business.  A handful have experimented with retail outlets, including Amazon Books, but those are still fewer in number and are acknowledged to be experimental by company management.

But beyond the idea that online shopping has matured enough to kill traditional retail, the story is more complex.  Private equity, in particular, has played an enormous role in killing traditional retailers buy their purchase of many retail icons and loading these companies up with debts that simply cannot be repaid.  In 2017, Business Insider featured an article about that as did the Wall Street JournalBusiness Insider eloquently wrote: "Nearly every retail chain caught up in the brick & mortar meltdown is an LBO queen - acquired in a leveraged buyout by a private equity firm either during the LBO boom before the financial crisis or in the years of ultra-cheap money following it. During a leveraged buyout, the private equity firm uses little of its own capital.  Much of the money needed to buy the retailer comes from debt the retailer itself has to issue to fund the buyout, which leaves the retailer highly leveraged."

Other suburban malls have withered away and died, often as the communities they were located in also suffered big declines in populations and tax bases. 

These days it's very popular to declare, often with little or very limited and selective evidence, that Amazon.com and online retailing is destroying traditional retail, and as of 2017, it's no longer an anomaly to know of "dying malls".  The growth of blogs and websites with names like deadmalls.com, blogs like sickmalls and YouTube channels including the Charles Bell Dead Malls Series and similar pages all seemingly lends credibility to the notion that the suburban U.S. shopping mall and traditional retailing is rapidly disappearing.  Dying (or dead) malls exist in most every state, although they don't always remain in their dead format.  For example, in more urban parts of the country, the properties tend to be quickly leveled so something new can be built at the exact same location because the real estate is so valuable.  In less-populated areas, once-thriving malls are now sad graveyards of retailing and more prosperous times.  Some old malls have been displaced by newer, bigger malls, while others are in areas that have yet to recover economically.

The online magazine Vox.com (see https://www.vox.com/videos/2018/4/11/17220528/american-shopping-malls-death-third-place for the article) had an interesting article (and video, see below) entitled "What the decline of American shopping malls means for social space" which discusses how enclosed, suburban shopping malls occupied a "third place" used for social activity to hang out with friends or meet neighbors which was completely lacking in many newer suburbs.  The video can be watched below, or by visiting https://youtu.be/oooVC3zfDc8.

But Vox notes that malls filled a need for social spaces in vacant or new suburbs, and although social media in the online world fills some of that need today, a need for face-to-face interactions with other human beings suggests that technology including social media will never truly be able to fill that void completely.

The NPR program State of the Re:Union had an interesting discussion about internet (virtual) communities and noted that while those are seldom completely positive or completely negative, they do lack some of what make face-to-face interactions a unique part of the human experience.  And no, virtual face-to-face interactions on Apple Facetime, Google Duo or Google Hangouts, video interactions are not quite the same.  To listen to that, visit http://stateofthereunion.com/internet-communities-virtual-reality/ for more details.

While the era of continued growth in retail shopping malls is likely over, the idea that we will ever succumb to ordering everything from our computers or phones and having or orders shipped to us days later is unlikely to ever completely replace more traditional retailing.  Indeed, while Amazon's purchase of Whole Foods Market is sometimes cited as an example, the reality of food retailing is the need for local distribution.  While Amazon will tinker with how to use its purchase of Whole Foods, big chains like Kroger, Publix, Safeway or Stop & Shop aren't worried that their proverbial "bread and butter business" model faces an imminent extinction threat from Amazon anytime soon.  One could say the same for drugstore chains Walgreens and CVS.  Although mail-order pharmacies operated by pharmacy benefits managers do command a big share of sales for maintenance medicines, the imminent need for something like antibiotics or cold medicines does not enable a time-consuming week-long order and delivery cycle necessitated by mail order pharmacies.

Also, clothing buyers will often find a need to physically try outfits on to see how well a pair of pants, a shirt, blouse or pair of shoes fits before they are willing to buy those items.  Hence, Amazon has not solved that not-so-little problem with digital technology.

So, while the 1950's era of suburban shopping malls is no longer the vision of American retailing's future, it will likely remain with us for some time to come.

For reference, I have listed several relevant articles (in no particular order) on this topic below which may be of interest.















Author P.S., September 1, 2020: CNN reported (see HERE) that according to data from research firm Moody's Analytics, the rate of U.S. mall vacancies is now at a historic high of 9.8% in early September 2020, exceeding the previous peak of 9.3% in 2011. Part of the issue is oversupply of mall space, but retail bankruptcies is another, and its been aggravated by the Covid-19 pandemic and the only way to control that being quarantines, which has made many once-solid retailers particularly vulnerable. The stakes are high for mall developers/managers, who are now trying to repurpose all of the vacant space in a variety of ways. Mall developers/property managers say they're scouting for businesses other than retailers to replace shuttered stores (since replacing a shuttered store with another store could backfire), leasing the space to anything from schools to doctors offices plus short and long-term storage facilities for both residential and commercial customers. The Wall Street Journal even reported that online retail giant Amazon is now looking to convert former or current JCPenney and Sears stores into distribution hubs to deliver packages. Meanwhile a former 70,000 square foot Sears anchor store at Brookfield Property Partners (Brookfield is the second largest mall operator in the country) is leasing space at its Grand Teton Mall in Idaho Falls, Idaho to be a charter school set to open in fall of 2021. Part of the mall's parking lot will converted into an outdoor play and recreation area for students. That said, most of the mall carnage seems to be spaces in less populated, less affluent areas.

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