Everyone remembers the American housing crash of 2008, and fears started to swirl soon after that the commercial real estate market was next. Have the predictions panned out? Foreclosures did start to happen with millions of dollars in losses, but it looks like things have finally stabilized to some extent. Whew!
While the value of commercial buildings dropped by nearly 40% throughout the country during this period, things have recovered to acceptable levels. The question is, how have large traditional malls been affected by these ups and downs? Let’s find out!
Due to completely different economic trends, the value of malls has been dropping. What has been going on, you ask? American retail giants have closed thousands of brick and mortar locations, including 5,864 in 2018. The other side of the coin that year was that they opened 3,239 new ones, but this is still a downward trend! Additionally, major mall anchors like Sears and JCPenney filed for bankruptcy or totally failed. Many found this shocking, and these exits left large spaces open to negotiation for lower rent. Shopping centers across America probably thought they could rely on the big bucks for those giant spots indefinitely, but things are changing quickly!
What has been going on at a mall near you? Perhaps you noticed the shuttering of Charlotte Russe, Payless Shoes, and Nine West. While these are names you probably took for granted as shopping staple stores, they have totally closed up shop! Many companies that had been seeing loss after loss, year after year to major online retailers like Amazon decided to throw in the towel. While it’s not clear if the winners are left standing quite yet, the world of e-commerce has certainly had an impact on the traditional mall model. If you’re honest, you will probably admit that you have been testing it out for yourself! Less foot traffic means lower sales, and over time this means that malls will have to offer more competitive rent prices than ever before.
Will physical malls survive as a concept in 50 years? It’s time for some adaptation and innovation! So far, mall owners are toying with the idea of temporary spaces that let new, growing brands rotate throughout the year. Goodbye, risky long terms leases!
Companies like BrandBox are aiding in this process by streamlining the web to store transfer for startups that want to try out a physical location, but lack the infrastructure to do it in a cost-effective manner. With 140 million square feet of mall space that has been emptied recently, this concept has plenty of rooms for experiments! Small companies may be intimidated by the design, logistics, and lawyering required to even contemplate a physical storefront, but this new middleman might just encourage them to make the leap! The spaces are simply beautiful, and they hope consumers will really enjoy these curated experiences in person. Very interesting, indeed!
Another major name that exited the business world in recent years is Blockbuster. Everyone knows that Netflix now rules the world, but few have probably thought about the literal space that rental chain left behind. Think about how many buildings became dusty as a result of this market event. Did you guess 9,000?
It turns out that strip malls with these empty shops are not suffering quite to the same extent. Why? The site selection of Blockbuster during its heyday were quite clever, with most of them near high traffic intersection spots and grocery stores that still remain an essential stop for millions of Americans every week. The thinking back then was to tie movie rentals to necessary errands, and it did very well before the online slaughter of video rental core models. While the vacancy rate of strip malls has been greater than the renters probably want, they have been finding creative ways to use the spaces. For example, splitting large vacant shops into smaller units for restaurants. And people will drive by, at least to buy chicken and milk. So there’s some hope, right?
Indoor shopping malls will need to continue relying on conscious trips to these large indoor retail worlds, and it will be interesting to see if they can find a way to keep the foot traffic up in these changing times. Besides the Mall of America, they cannot really claim any novelty status! Why go to the mall if everything is online? That’s a question consumers must answer over the next few years, but the malls clearly need to do something drastic to stop the inertia flowing in the other direction. Good luck, and may the best man win!