The Decline of the Traditional Mall and the Evolution of Experiential Shopping

Traditional Mall, Madison Marquette, Experiential Shopping, CREW SF, Stony Point, Richmond, International Council of Shopping Centers (ICSC)
Bayfair Center in San Leandro | Photo by MMRS

By Lori Coleman, Madison Marquette

This article will also appear in The VIEW, the quarterly newsletter of Commercial Real Estate Women San Francisco (CREW SF). CREW SF’s mission is to develop and advance women as leaders in the commercial real estate industry. It is dedicated to changing business’ gender trends and closing the parity gap by giving women in real estate the support, resources, and opportunities they need to connect, influence, and lead. For chapter news, events and membership information visit crewsf.org.

Madison Marquette
Coleman
[dropcap]M[/dropcap]ajor shifts in the demographic and socioeconomic composition 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 or a three-course meal in one swipe, the clicks vs. bricks conversation has generated a lot of debate over how to prepare and restrategize the physical retail landscape.

“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.

Technology and emerging entertainment alternatives have all considerably reduced interest in America’s traditional enclosed-mall model. The International Council of Shopping Centers (ICSC) reported that since 1990, when 16 million square feet of mall space opened, shopping center building has trailed off, and only one large new mall has opened in the US since 2007. According to Greenstreet Advisors, nearly 25 enclosed shopping centers around the country have closed since 2010, and another 75 are in danger of failing.

A combination of socioeconomic forces has 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 products no one else has; they want authenticity and luxury, not just discounts.

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 the 2015 Goldman Sachs list of top 100 malls in the United States, 75% are home to an Apple store, up from 69% in 2014. (“B malls” are traditionally classified by their location in secondary markets and a range of $300–500 per square foot in sales, according to National Real Estate Investor.)

Short Hills Mall in New Jersey, considered one of the most highly trafficked mall properties in the country, with maximum sales per square foot, has anchor tenants Bloomingdale’s and Saks Fifth Avenue peddling luxury leather and skin creams to a demographic with a much higher net worth than those patronizing malls in tertiary markets with marginalized retail concepts that can’t compete in a more sophisticated retail scene.

Since fewer, if any, retail properties are being developed from the ground up, existing ones are looking for innovative ways to remarket their square footage, like Highland Mall in Austin, Texas, 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, reopened in October 2015 with a spa, a children’s lending library, and a movie theater with recliner seating, and it is being repositioned 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 that the Wall Street Journal has dedicated an entire series in its 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 multipurpose appeal.

Bloomberg News has reported(1) that millennials aren’t that into malls, compared to the previous Generation X, who grew up in the “mall-rat culture” of the ’80s and ’90s. 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 thinking about how to integrate their merchandising into mobile-friendly marketing concepts that draw shoppers into their physical locations, not just the screen.

Millennials and the next generation of shoppers desire outdoor spaces and garden rooftops, dining options that are near their place of residence, 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 population of consumers that’s more connected than ever.

1 http://www.bloomberg.com/news/articles/2014-06-25/millennials-shunning-malls-speeds-web-shopping-revolution

About the Author
Lori Coleman has been with Madison Marquette for 12 years, and her experience in commercial real estate includes a diverse background in accounting, property management, and project management of hotel, retail, industrial, and office properties. Lori is currently the Vice President of Management Services for Madison Marquette’s California Shopping Center portfolio of over 3.3 million square feet. She oversees the property management and accounting teams and has a direct relationship with each owner, ensuring that their individual needs and reporting requirements are met. Lori has a Master’s of Public Administration from San Francisco State University and a bachelor’s degree from UC Santa Barbara. She also holds a Real Property Administrator (RPA) designation from the Building Owners and Managers Association (BOMA) and a California Real Estate Salesperson License. Lori is an active member of CREW San Francisco and the Union Square Business Improvement District.

West Coast Commercial Real Estate News