Mall Problems: the non-digital causes
There are many reasons behind failing shopping malls. I reckon enough has been said about Ecommerce, their main foe, so following is a top 10 of other causes:
Oversupply:
In the US, the total retail floorspace is 5 times larger than in Europe. This was driven by the ‘’shop till you drop’ mentality of the 1980s and 1990s, and by real estate developers who kept on building malls in the locust years 2000. Now that Ecommerce has conquered a large portion of the retail pie (it represents 21% of total retail sales in the US), the oversupply of shopping malls is evident and clearly unsustainable.
Retail Density in the US vs Europe:
Source: GFK, others. Total Sqm floorspace per inhabitant
Catchment Area:
A catchment area is the number of people living near a mall, forming the potential clients. The stronger the brands in a mall, the wider the catchment area. But if there are few potential clients (say in Detroit suburbs, where people moved away), malls can become pretty weak.
Northland Center — Southfield Detroit (1954–2015) was the most important mall of the region, but newer malls cut slices out of its catchment area and it suffered a loss of residents who emigrated elsewhere.
Disposable Income:
Shopping malls were originally created for the lower middle class. They were built in suburbs, with large parking facilities and with a tenant mix of affordable (but not discount) retailers. In the US, the middle class has gradually declined in the past 50 years, which has caused the mall formula to perform worse. Low income consumers shop differently: they are keen on discount retailers, but these lack a pleasant “customer experience”, a vital feature to make people stay at a mall.
Share of nr of Adults in each Income Tier:
Source: Pew Center
Aging Malls:
US malls became popular in the 1950s and more than a third of them were built prior to 1978. Many of those old buildings kept functioning without decent renovation and without adapting to new trends. This is a recipe to become a bad mall, of course.
Concord Mall — Wilmington, Delaware’s 2nd largest mall, was inaugurated in 1965, is much outdated but still opened.
Number of floors:
Outside Asia people don’t like to climb up or down for shopping, not even with escalators. Two floors work well, but a mall with more storeys has a problem. This can partially be solved by placing a very strong brand on each floor or by installing a parking lot on the roof, but for most malls those options are not feasible.
Pacific Place — Seattle is a 5 storey mall struggling to keep all levels attractive to visitors. The top floor movie theatre is not enough to seduce consumers to go up.
Shopping centre size:
A correct size — in line with the catchment area — is very important for a mall. Too small means it can host few strong tenants and will be uncompetitive. Too large means it will have many vacancies, creating a negative ambience in the mall and draining the mall’s finances.
American Dream Mall — New Jersey is an enormous mall of 3 Million sq feet and 33,000 parking spaces, opened in 2019. This obvious excess of floorspace has led to a zig-zag strategy of what to include, a high number of low-rent tenants as well as a lot of vacant units.
Mall configuration:
In the US many malls worked with two large Department Stores as anchor tenants, together with a long battery of small stores inbetween. Simple but effective, as long as the big guys performed well. But nowadays consumers prefer medium-sized specialised retailers (Nike, Apple, Lush) and fast fashion outlets (H&M, Zara) over generic Department Stores. This caused many malls to scramble over their configuration, as it was complicated to adapt their lay-out to 10,000–20,000 sq feet units.
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Nr of Department Stores in the US:
Source: IBISWorld based on US Census data
Mature anchor retailers:
Most Shopping malls continue to have apparel brands, a Department Store/Hypermarket, and a Cinema as the core of their tenant mix. All of these activities are in the mature phase of their life cycle, the latter two are even past that. This is of course not a healthy situation and causes malls to slowly lose strength.
Presence of Anchor Tenants in Malls:
Changing Consumer Habits:
Today’s youngsters have a different lifestyle than 20 years ago. They show less interest in owning stuff and in shopping and are more interested in living new experiences. Social media platforms such as Instagram help pushing these trends of course. This is bad news for malls, as their focus has always been on facilitating shopping retailers, who pay a much higher rent than non-tangible leisure operators.
Source: INE/Modaes.es. Spanish market
Mall Management:
Behind the scenes, pro-active asset management is crucial to keep a mall functioning. But in the current age of disruption, management needs to master a whole new set of specialisations, such as new technologies, out-of-the-box retail activities, centralised Ecommerce and home Delivery, experience oriented architecture and curation, stronger bonds with retailers, etc. Especially for small organisations and communities of owners, this is usually too much to ask and too difficult to implement.
Alcalá Norte — Madrid (Spain) is a mall in hands of a large community of owners, difficulting its decision-making. Management is understaffed and has little room to implement a much-needed modernization.
