And the Internet is not the Only Culprit
A lot has been written and spoken recently about dying malls, my participation included. Well, here’s another one. In the middle of this protracted conversation, I discovered an interesting irony. As originally defined, the term, “mall anchor,” is now an oxymoron. Major retailers defined by mall and shopping center owners as “anchors” for their ability to generate traffic, now feel as though they are literally anchored to the mall, not able to cut loose as its Titanic-like host is going under. So the term “mall anchor” has now converged figuratively and literally.
With the exception of a hundred or so A malls, the B, C, and D malls are learning the hard way what they should have anticipated and acted upon a decade ago. Instead of the heavy dependence on their anchors for generating traffic and profitable growth, mall developers should have realized that nothing stays the same forever. As the Internet loomed larger by the minute, it didn\’t require a rocket scientist to predict that technology would drive a fundamental transformation across the entire industry and threaten to the very existence of retailing, as we knew it.
With every mall and store in the world resting comfortably in consumers’ pockets or in their living rooms, who needs to spend the time and effort to actually go to, and shop through the mall when they can let their fingers do the walking and can shop virtually for an unlimited selection in a matter of minutes? All while sipping coffee.
Had mall owners foreseen the devastating plunge in traffic and the waning drawing power of their anchors, they would have proactively collaborated with their tenants to come up with a strategic transformation to unshackle from the anchor model. However, they didn\’t. Therefore anchor positions have become an albatross around the necks of both successful retail anchors who now want a more compelling location, and the failing anchor stores who just want to get the hell out.
The Internet is Not the Only Culprit
While the Internet, rocket-fueled by the smartphone, has been the big disrupter, many malls have become irrelevant aided and abetted by three other major drivers:
1. Millennials Are Replacing Boomers as the Largest Consumer Segment
Aging Boomers, the largest consumer group ever, are retiring or starting to die off. And those among the living are downsizing, trading big homes for smaller ones, or renting in urban areas where they find more freedom in less burdensome and maintenance free apartment living. They just don’t need or want more stuff. “Stuff” expenditures for this group are now being transferred to purchasing experiential travel, leisure, and entertainment, as well as health and wellness. The Great Recession has changed shopping behavior, and whatever lesser amounts Boomers are still spending on stuff is being spent more online as opposed to a fatiguing and annoying trip to the local mall.
Millennials, who are replacing the Boomers to become the largest consumer segment (projected to account for about 30% of all retail sales by 2020), are also shaping a different lifestyle. Currently about 80% of the US population lives in urban areas. That number is growing due to Millennials preference for urban living, further influenced by the fact that many cannot afford to buy a home. Some are burdened with paying down school loans, and many of them still struggling to find decent paying jobs commensurate with their college-grad degrees. So renting an apartment is more often than not, their only choice.
Other lifestyle characteristics of this generation do not bode well for the future of massive suburban malls and shopping centers. Less is more for Millennials, and quality of lifestyle is desirable over big quantities of everything. Smaller, intimate and interesting environments trump giant stores and massive choice. High-tech and even higher-touch experiences are requisites. Ostentation is eschewed for the understated. Special-just-for-me, highly personalized brands beat out over-exposed badges of luxury. And social gathering places don’t always need physical spaces. But when they do, these places are not going to be impersonal, mega-scaled shopping centers.
Millennials are shopping differently, largely due to the fact that they were born into, and are using the full empowerment of the Internet and technology. They continue to accelerate their use of the Internet, fueling its double-digit growth rates. Therefore the shopping mall, unless it has a compelling enough reason for these young people to hang out, is being replaced by local grass-roots gathering places where the Next Gen can be with their friends to shop as well as work on their personal projects assisted by their smartphones and MacBook Airs. Mall-based teen specialty brands are struggling because they haven’t changed their models and store designs accordingly.
On the other hand, if Millennial shoppers do seek a more mall-type experience, they prefer clusters of smaller, freestanding stores in local neighborhoods or in mixed-use “village lifestyle centers.” These new public plazas offer a more compelling social and community experience, with streets of shops, outdoor cafes, restaurants, movie theatres, bakeries, and the like. Developers are keyed into this seismic shift, as many of these villages are designed with offices or apartments located above the shops.
2. Cash-Strained, Lower Income Consumers
The rich are getting richer. The A malls that largely cater to them will likely survive, although, they too, must elevate the shopping experience. However, many of the B, C and D malls catering to lower income consumers, many of whom are getting poorer, will either close altogether or be repurposed as walk-in medical clinics, health and wellness centers, video game complexes, movie theatres, etc. These cash strained consumers are reducing the number of visits to the mall to save on gas. At the same time, the dollar stores opened thousands of small, freestanding stores in lower income neighborhoods, more accessible and convenient for these paycheck-to-paycheck shoppers. Furthermore, Amazon offering rock bottom prices on just about everything, has stolen huge share of market from all the brick-and-mortar discounters serving this segment.
To throw more fuel on the fire that’s burning up mall traffic, both Walmart and Target are fighting back to regain some of their market share moving away from the mall and accelerating their small-store neighborhood strategies to compete with the dollar and convenience stores. The big-box guys are also aggressively increasing their omnichannel capabilities to better compete with Amazon.
Two other culprits are JC Penney and Sears. They are anchor tenants in roughly half of the mainstream US malls. The tale of these two retailers is not a happy one. JCP is struggling to right its ship after losing roughly a third of its business, which will require them to close many of those mall locations. Sear’s tale is one of a slow and painful death (in my opinion), which means they will ultimately close or sell the locations they own. Whatever small amount of traffic these former giants are still generating for the malls will continue to decline.
3. Outlet Malls On Fire
As retailers from luxury to mainstream continue in the value race to the bottom, in which price has become the weapon of choice, outlet stores are actually just another ruse to discount. Since the overhead for running these operations is much lower than full-line stores, the opportunity for faster and more profitable growth is intoxicating for all retailers who have been drastically slashing prices in their full-line stores, thus decimating margins.
Saks Off Fifth, Nordstrom Rack, Bloomingdale’s The Outlet Store, and Neiman-Marcus Last Call are all aggressively opening new outlet stores while they have few, if any new full-line openings planned. Even mainstream Macy’s is opening an outlet, and will probably find that it’s a highly-effective distribution channel for new growth. Just by example, upscale Coach generates 70% of total revenues from their outlet stores. Chico’s, Gap, even J Crew, are all opening more outlet stores, along with many others.
Of course, the elephant in the room is how this type of discounting is going to have on the credibility of the brands over the long term.
What’s an Anchor to Do?
If you happen to be a retailer “anchoring” dying malls, you need to determine how you can get the heck out of there without paying huge penalties. Then craft a new, smaller neighborhood store strategy that can be freestanding or as a part of one of the new lifestyle “villages” mentioned earlier.
And if you’re one of the dying mall owners, you have to figure out how to repurpose your space or simply close it down entirely. If you do, please take it down with the wrecking ball. These abandoned malls with their piles of cracking cement, broken windows, and huge empty parking lots, are horrible blights that devalue the whole area.
Repurposing examples abound. A laundry list of ideas: walk-in medical clinics, health and wellness centers, video game complexes, bigger Cineplex theaters with more Imax screens, university extension schools, 3D printing centers, gun ranges, aquariums, gyms, go-cart tracks, maker faires, community theatres, bowling alleys, day-care facilities, indoor parks, community centers and churches. And a huge opportunity; conversions to ethnic, culturally thematic malls such as the Fiesta Mall in Atlanta, totally focusing on Latino customers and all of the things they enjoy as they spend the day shopping with their families.
So the message to the anchor-store mall owners or anchor-retailers, un-anchor yourselves and embrace the revolution. Disrupt yourselves and “bite the bullet” on whatever financial hit you must take to change your business model. Quickly. As they say, “sink or swim.”