The Steep Decline of the American Shopping Mall
Once the hallmark of American retail, shopping malls are vanishing across the country. As consumer habits shift online, malls are struggling to maintain relevance and profitability. By the numbers, the outlook for these retail giants grows increasingly dire each year.
A Record Pace of Closures
According to retail analysis firm Green Street, more than 30% of America‘s remaining 800 malls will close in the next 3-5 years.[1] That equates to over 240 malls shuttering in quick succession.
2021 marked a record year for mall closures with 90 malls shutting down, beating the previous high of 87 closures in 2017.[2] Major mall operators like Simon Property Group have closed over 100 locations since 2020.[3]
Soaring Vacancy Rates
As closures mount, vacancy rates at still-operating malls have continued climbing. Average mall vacancy hit a new high of 10.5% at the end of 2022 according to Moody‘s Analytics.[4] For lower-rated malls classified as B, C, and D, vacancies averaged a staggering 15.4% last year.
Many ailing malls now resemble ghost towns, with entire wings sitting dark and tenant spaces peppered with "for lease" signs. Department store vacancies present a notable challenge – when anchor stores like Macy‘s or JC Penney close, it often accelerates the demise of weaker malls.
The Rise and Fall of the Category Killers
Today‘s mall woes represent a dramatic reversal from their heyday in the 1980s and 90s. Mall developers perfected anchor tenant strategies pairing department stores with specialty chains. Time-saving one-stop shopping convenience drew throngs of suburban consumers.
By the early 2000s, nearly 1 out of every 4 purchases in categories like apparel, jewelry, and furniture flowed through malls.[5] For a time, shopping malls seemed impervious to every outside threat from big box stores to economic downturns.
The Amazon Effect Impacts Brick and Mortar
Yet the seeds of decline took root as shoppers migrated online after 2000. E-commerce accounted for just 0.9% of retail sales when mall growth peaked in the U.S.[6] Fast forward 20 years – Amazon alone holds nearly 40% market share across all online retail.[7]
While seemingly everyone hurried to create an online store, malls lacked the nimbleness to keep pace digitally. Anchor chains like Sears failed to adapt and descended into bankruptcy. With their core economics unravelling, the very survival of malls now hangs in the balance.
Top Mall Owners Attempt to Reshape their Assets
Simon Property Group, Brookfield Properties, Taubman Centers, Macerich, and Unibail-Rodamco-Westfield own over 300 malls in America combined. With so much prime real estate under stress, these heavyweights are getting creative in re-adapting locations:
Taubman revamped The Mall at Short Hills in New Jersey in 2021, removing little-used seating areas for luxury boutiques and restaurants.
In Simon‘s Phipps Plaza mall in Atlanta, taking cues from European town squares, they added high-end condos, a Nobu Hotel, and direct residential access to the property.
Brookfield turned the struggling San Antonio Shops at Rivercenter into a mixed-use development hub including apartment living.
Reinventing malls as vibrant, multi-purpose "live-work-play" destinations has shown promise. But for aging properties in small markets no longer drawing crowds, such costly renovations simply aren‘t financially viable.
Projecting the Future of Malls
Market data paints a turbulent outlook for shopping malls over the next decade. Continued e-commerce growth approaching 30% or more [8]of all retail sales will place further pressure on physical stores.
As many as 300 more malls could shut down in the next five years based on historical closing rates. Trend-spotters predict malls will increasingly downsize, converting vacant spaces into non-retail uses like healthcare clinics, churches, or warehouses.[9]
Well-capitalized owners may opt to demolish and redevelop failing malls altogether into distribution centers, business parks, or residential buildings. Regardless of path, visitation and sales will continue trending lower for most shopping mall locations.
Sources:
- Green Street Retail Outlook Report
- CNBC Mall Retail Analysis
- Forbes "The Future of the Shopping Mall"
- Moody‘s Retail & Consumer Insights
- Deloitte – The Future of the Shopping Mall
- U.S. Census Bureau
- Insider Intelligence Ecommerce Statistics
- Digital Commerce 360 Online Retail Projections
- Commercial Property Executive – Repurposing Defunct Malls
