Issue: Shopping Malls Shopping Malls - By: Sharon O'Malley - SAGE Business Researcher
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Issue: Shopping Malls
Shopping Malls
By: Sharon O’Malley
Pub. Date: August 29, 2016
Access Date: January 15, 2021
DOI: 10.1177/237455680217.n1
Source URL: http://businessresearcher.sagepub.com/sbr-1775-100682-2747282/20160829/shopping-malls
©2021 SAGE Publishing, Inc. All Rights Reserved.
©2021 SAGE Publishing, Inc. All Rights Reserved.
Can they survive in the 21st century?
Executive Summary
For one analyst, the opening of a new enclosed mall is akin to watching a dinosaur traversing the landscape: It’s something not seen
anymore. Dozens of malls have closed since 2011, and one study predicts at least 15 percent of the country’s largest 1,052 malls could
cease operations over the next decade. Retail analysts say threats to the mall range from the rise of e-commerce to the demise of the
“anchor” department store. What’s more, traditional malls do not hold the same allure for today’s teens as they did for Baby Boomers in
the 1960s and ’70s. For malls to remain relevant, developers are repositioning them into must-visit destinations that feature not only
shopping but also attractions such as amusement parks or trendy restaurants. Many are experimenting with open-air town centers that
create the feel of an urban experience by positioning upscale retailers alongside apartments, offices, parks and restaurants. Among the
questions under debate: Can the traditional shopping mall survive? Is e-commerce killing the shopping mall? Do mall closures hurt the
economy?
Overview
Minnesota’s Mall of America, largest in the U.S., includes a theme park, wedding chapel and other nonretail attractions in an
attempt to draw patrons.
Northland Center in Southfield, Mich., was America’s grandest shopping center when it opened in 1954. It died last year.
Once the world’s largest shopping center, with a vast outdoor parking lot and 111 stores, anchored by a Hudson’s, Detroit’s largest
department store, it housed a bank, a post office, a theater and several auditoriums. Although its stores were closed on Sundays back
then, the open-air complex, which featured fountains, artwork, trees and sculptures, became a popular after-church destination for
suburban Detroit families. 1
“The theater was a big draw for Northland,” architect and mall historian Lauren Ortega said, and the sprawling 159-acre shopping center
“became a part of a ritual of suburban life,” as did thousands of other shopping centers around the country. 2
To compete with newer indoor malls, the owners placed a roof over the iconic open-air center in 1974. Seventeen years later, the mall
added a food court with a Cinnabon and a Panda Express, by then must-have mall staples.
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But the changes were not enough to stave off a slow decline precipitated by a sluggish economy, competition from newer, higher-end
malls and a growing exodus of shoppers to online stores. In 2015, with its department store anchors gone, half of its storefronts vacant and
its operating losses running $250,000 a month, a dilapidated Northland Center closed for good. 3
Northland was one of dozens of decaying regional malls—enclosed shopping centers measuring 300,000 square feet or more that draw
visitors from long distances—to shutter since 2011, according to Green Street Advisors, a research and consulting firm that tracks mall
activity. 4 At least 15 percent of the country’s 1,052 regional and super-regional suburban malls will close over the next decade, it predicts.
Some will be razed; others will be converted into community centers, churches or schools. 5 (See Short Article, “Developers Reinventing
an American Institution.”)
Other industry analysts foresee a future with even fewer massive malls. Urban
planner Ellen Dunham-Jones forecasts that 42 percent of malls are already
dead or on the brink of closing. A CoStar Group survey last year determined
that in nearly one-fifth of enclosed malls, 10 percent or more of storefronts are
vacant. And 3.4 percent had vacancy rates of 40 percent or greater—a sure
sign of pending death. 6
Still, not every enclosed mall is in danger; in fact, many Americans might not
stand for it if they were. In a 2016 survey by Australia-based Westfield Corp.,
the fourth-largest shopping mall developer in the United States, 45 percent of
U.S. shoppers ranked the traditional mall as their preferred retail
destination. 7 And about 80 percent of the country’s enclosed malls have
vacancy rates lower than 10 percent and are therefore classified as healthy,
according to the CoStar survey. 8 One example is Minnesota’s 4.2 million-
square-foot Mall of America—the largest, in square feet, in the U.S.—with its
theme park, wedding chapel and other non-retail attractions.
Owners of the largest, most profitable malls performed better financially in
2014 than investors in other kinds of real estate. 9 “There are clearly
shopping malls in the U.S. that are high value,” says architect Terry Shook,
founding partner of Charlotte- and Los Angeles-based Shook Kelley, who
points to real estate investment trust Taubman Centers, which invests only in
shopping malls. Sales at Taubman properties average an industry-topping
$712 per square foot. 10
That’s proof, says Jan Rogers Kniffen, CEO of J. Rogers Kniffen Worldwide
Enterprises, a retail consulting firm, that “the malls are not dying, and the malls When it opened in 1954, Northland in suburban Detroit was the
are not going to die. We may see some serious attrition among these great world’s largest shopping center, housing 111 stores on a
malls, the 1,100 regional malls. But we’re never going to see [top-tier mega- sprawling 159-acre site. (Bettmann/Getty Images)
malls] struggle. They’ll just take more share.” Daniel J. Busch, a Green Street
senior analyst, agreed: “One of the biggest misconceptions is that the malls in
aggregate are struggling or even dying.” 11
Still, tracking dead and dying malls has become something of a spectator sport for historians, the media and nostalgic shoppers.
DeadMalls.com, a website with cultlike status among mall-watchers since it started collecting stories of decaying malls in 1999, said that
New York, Pennsylvania and Illinois are losing malls at a quicker clip than other states. 12
A litany of woes is to blame, according to retail analysts, including:
E-commerce. Perhaps the primary threat to malls, online shopping is growing faster than in-person shopping.
Anchor-store closings. Reeling from the online threat and competition for Millennials’ dollars from “fast-fashion” retailers like H&M
and Primark, mall anchors such as Sears and Macy’s have closed hundreds of mall-based stores, taking with them the foot traffic
that smaller mall stores rely on for sales. 13
Changing demographics. As teens, Baby Boomers loved to hang out at the mall. Now retired or heading toward it, most are
empty nesters who no longer need to buy as much for their homes or themselves. 14 Plus, 58.6 percent of American women work or
are looking for jobs, leaving them less time for shopping at the mall. 15 And teens spend 26 percent less time at the mall compared
to 10 years ago, according to investment bank PiperJaffray, which conducts a semi-annual survey of teen spending. 16
Too many malls. “The U.S. is undoubtedly over-malled,” Green Street analysts noted in the firm’s 2015 U.S. Mall Outlook. In fact, in
many markets, a mall’s biggest threat is other malls. Green Street called mall closings “a healthy outcome,” given the
oversaturation. 17
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Mall consolidation. Publicly traded Real Estate Investment Trusts, or REITs, control the majority of U.S. malls, and they began the
merger trend in the late 1990s as they bought up or merged with their competitors. Further consolidation is expected. 18 One
byproduct: REITs are spinning off underperforming malls from their portfolios, creating separate entities to own them, sell them or kill
them, and refocusing their resources on expanding or redeveloping their malls into high-end shopping destinations in the United
States and Asia, where indoor malls are still thriving. 19
Outstanding loans. Hundreds of malls across the country owe an aggregate $47.5 billion on loans taken out during a 1990s
“borrowing binge” for mall construction, according to data from Bank of America Merrill Lynch. 20 Some mall owners may opt to walk
away from their weaker properties rather than foot the bill. General Growth Properties Inc., the second-largest U.S. mall owner,
defaulted on a $144 million loan on suburban Detroit’s Lakeside Mall that came due in June. 21 That mall’s fate is up in the air.
Most of the casualties will be older, so-called Class B and Class C malls whose owners have not invested in their upkeep or upgrades the
way they have for top-tier, Class A properties. Many will be in communities with declining populations and high unemployment, and no
longer appeal to shoppers.
“When you look at a mall that might be struggling, the broader economy in those individual communities is probably struggling,” says Tom
McGee, CEO of the New York-based International Council of Shopping Centers, the global trade association of the shopping center
industry. “With a very consumer-facing industry like shopping, to the extent that the economy is struggling, that will affect the malls.”
With each closing, the era of the traditional suburban shopping mall, begun around the same time Northland Center opened, will fade a bit
further into history.
Even for malls that survive or thrive, “the status quo will be changing,” says James Cook, Americas director of retail research for JLL, a
Chicago-based financial and professional services firm that specializes in commercial real estate services and investment management.
In part, that means mall developers have stopped rushing to break ground on new shopping center complexes; indeed, just one major mall
opened last year and none has opened in 2016. 22 The long-delayed, $5 billion American Dream Mall in New Jersey’s Meadowlands,
across from New York City, may open within two years. Shook says it may be among the last new enclosed malls to be built: “It’s like
watching the last dinosaur walk across the landscape.” Taubman in January scrapped plans to build an enclosed mall in Miami. 23
In fact, since indoor mall construction peaked in 1990 with 16 million square feet of new space, building has tapered off every year. In
2007, for the first time in more than 40 years, no new malls opened in the United States. And then, five years passed until the next
opening. 24
Instead, owners of top-tier malls are pumping billions of dollars into renovating and rebuilding outdated shopping spaces in an effort to
appeal to Millennial shoppers who crave unique experiences more than the items for sale in stores. “What made a good mall in 2000 and
what makes a good mall in 2016 is different,” says Paco Underhill, CEO of New York-based market research firm Envirosell and author of
“Why We Buy” and “The Call of the Mall.” Mall owners are in “the constant process of trying to upgrade their properties.”
As a result, developers are repositioning malls—traditionally centers that specialize in shopping—into destinations that feature shopping
but whose main draw might be an amusement park, a concert venue or a row of trendy restaurants. “The share of wallet that consumers
are spending on the core [merchandise] that is sold in the mall is diminishing,” says Michael Brown, a partner with Chicago-based
management consulting firm A.T. Kearney. “Consumers spend less and less … on apparel and footwear. They’re looking for experiences.”
New York-based retail consultant Robin Lewis, co-author of “The New Rules of Retail,” agrees. “Experiences are the only thing that is
going to save the day,” he says, “for malls and for retailers as well.”
Malls, McGee says, are “curating” their offerings, based on the tastes of their local communities. “It’s really important that you don’t have
plain vanilla experiences,” he says. “As consumers, we have come to expect a customized experience.”
To that end, owners of Class A malls are catering to shoppers with plenty of money to spend, replacing struggling, midlevel department-
store anchors like Macy’s—which closed 40 stores in 2015 and ‘16 and has announced plans to shutter another 100, most of them in early
2017—with luxury retailers like Saks Fifth Avenue, Nordstrom and Neiman Marcus. 25
In locations whose populations can’t afford high-end price tags, some gasping malls are aligning themselves with discounters such as
Target, T.J. Maxx and Marshalls; signing supermarkets as tenants; or reaching beyond retail for new anchors like medical or government
offices. 26
But some analysts say the indoor mall is beyond resuscitating. Shook points to the success of open-air, mixed-use town centers that
create the feel of an urban experience by positioning upscale retailers alongside apartments, offices, parks and restaurants on streets in
popular communities not too far from city centers.
Real estate developer Rick Caruso, who created such a shopping center, called The Grove, in Los Angeles in 2002, also sees the
industry headed back to open-air, street-front shopping clusters known as “lifestyle” centers. “Within the next 10 to 15 years,” said Caruso,
“the traditional indoor shopping mall will be a memory, a historical anachronism that no longer meets the needs of consumers or
27
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27
retailers.”
As economists, mall developers, retailers and urban planners consider the
status of the suburban shopping mall, here are some of the issues being
debated:
Weighing the Issues
Can the traditional shopping mall survive?
Parents and children flocked to the suburban Cherry Hill Mall in southern New
Jersey last December not just to visit Santa but to take a virtual sleigh ride
and attend a “Sleigh Flight School” in a 2,000-square-foot Christmas village.
The DreamWorks-hosted “Adventure to Santa” was designed, said Joseph F.
Coradino, CEO of the mall’s owner, Pennsylvania Real Estate Investment
Trust, to “make Cherry Hill Mall a must-visit destination through the holiday
season.” 28
In fact, owners of regional malls are spending billions to transform their
generic, retail-centric properties into must-visit destinations by making the
experience of visiting the mall just as appealing—or more—as shopping at
the stores inside it.
The concept isn’t new: Mall of America, built in 1992 in suburban Minneapolis,
has been the Midwest’s top tourist destination since it opened. 29 There,
visitors can get married in a wedding chapel or pilot an airplane flight
simulator. The planned 6 million-square-foot American Dream Miami, which
will usurp Mall of America’s status as the largest U.S. shopping mall when it CEO Tom McGee of the International Council of Shopping
opens in 2020, will feature a snow-covered indoor slope where patrons can Centers: “As consumers, we have come to expect a customized
ski. 30 experience.”
In fact, the Austrian architect who designed Northland in 1954—and two years
later, Southdale Center in suburban Minneapolis, the world’s first enclosed suburban shopping mall—conceived both as their
communities’ hubs for socializing and entertainment.
Like Northland and other decaying malls, today’s thriving destination malls—as many as 400 in the United States—have a roof, two floors,
a food court and a big parking lot, and some are decades old. Two differences have saved this new breed from Northland’s fate, however:
Their owners have loosened their grip on both tradition and their wallets. By pouring money into redevelopment; embracing technology as
a complement rather than a competitor; and courting tenants, retail and otherwise, that excite young shoppers enough to get them through
the door, the top tier of shopping malls has not only survived, it is thriving.
Percentage Share of Leasable Area by Retail Space Type
Neighborhood centers lease more space than other shopping facilities
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Note: GLA stands for gross leasable area. See glossary for definitions of types of centers.
Source: ICSC Research and CoStar Reality Information Inc., “U.S. Shopping-Center Classification and Characteristics,” 2016,
http://tinyurl.com/guqt75q
Neighborhood center areas make up 31 percent of the shopping industry’s gross leasable area, more than any
other type of shopping facility. For a complete listing, download the Excel file above.
“Experiences and entertainment,” says author Lewis, who writes the weekly The Robin Report for the retail industry. “If these stores and
these malls and these shopping centers want to tear these Millennials away from their iPhones to come shopping for stuff, they’ve got to
create awesome experiences, experiences they can’t get online.”
Once there for the adventure, they shop, too. The International Council of Shopping Centers reported in May that patrons buy
“discretionary” items like clothes and electronics during 48 percent of their mall visits. They dine at a restaurant or the food court 43
percent of the time. 31
Not every healthy mall has an outsized adventure tucked inside, though; a careful selection of retailers has kept the second-largest U.S.
shopping center by number of stores and square footage, King of Prussia Mall near Philadelphia, in the black. The 52-year-old mall banks
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SAGE Business Researcher©2021 SAGE Publishing, Inc. All Rights Reserved. on its seven department-store anchors, from the affordable JCPenney to the luxury retailer Neiman Marcus, to drive foot traffic. It houses 40 restaurants and lures shoppers with top-flight shops like jeweler David Yurman, clothier Betsey Johnson and home accessories store Williams-Sonoma. A high-tech Apple store is also a magnet. 32 In fact, the iPhone maker’s stores generate so much traffic that they’re credited with increasing a mall’s overall sales by 10 percent, according to Green Street. 33 Likewise, the 24 malls where high-end electric carmaker Tesla is a tenant average $940 in sales per square foot, compared with $835 industrywide. 34 Of course, not every community is wealthy enough to support a Tesla dealership at the local mall. The real estate truism that location, location, location can make or break a property remains valid: Most thriving malls are in densely populated suburbs not far from a bustling city, near transportation and in regions whose residents have money to spend, says economist Ryan Severino, director of research for real estate research firm REIS. Those conditions allow developers to favor upscale retailers, a move that thrusts per-sale spending by shoppers—and thus sales per square foot—upward. That’s good for the malls, which typically base the rent they charge on a store’s sales. That leaves many shopping centers in less affluent communities unable to compete for mall stalwarts like Williams-Sonoma and Macy’s, which are reported to be abandoning secondary malls so they can concentrate their resources on upscale centers and online sales. 35 At the same time, mall operators are spending less—or nothing—on shoring up faltering properties and more on making the top performers even more successful. Those practices are widening the gap between Class A malls, with sales per square feet topping $500, and all others, industry experts say. Class B and C malls, whose nicest store might be a Sears or a JCPenney, are struggling to compete with nearby destination malls and online retailers. Green Street Advisors estimates that the top 100 malls, out of more than 1,000, claim 44 percent of total mall value. 36 “Those midlevel malls are getting crushed because they have no reason for being,” says Howard Davidowitz of New York-based Davidowitz & Associates, a retail consulting firm, who notes, “Most malls are middle-class.” Envirosell’s Underhill agrees: “Most malls have a ubiquitous offering. The customer gets bored because the malls all have the same tenants.” But Severino says some of those at-risk malls can rescue themselves by carefully selecting their tenant base, just as the top-tier malls are doing—only with discount stores like T.J. Maxx, Ross Dress for Less and Dollar Tree, along with small medical offices and other service providers—rather than luxury retailers. Even then, Green Street’s Busch notes, such malls face stiff competition from strip malls—small open-air centers with a row of attached stores—and giant stand-alone discount stores like Walmart. “Where the malls are really struggling is somewhere between those two extremes,” he says. In the end, it’s a game of survival of the fittest, says A.T. Kearney’s Brown: “The best malls are getting stronger.” For those that don’t, says JLL’s Cooke, “The question is: When will they close?” Is e-commerce killing the shopping mall? Online shopping will account for just 9 percent of retail sales this year, but industry analysts point to it—or at least to its biggest player, Amazon—as the most potent threat to the shopping mall. 37 Globally, e-commerce accounts for $1.5 trillion in sales and is forecast to grow 15 percent annually for the next three years. Still, by 2019, online shopping will account for just 12.4 percent of retail sales—$3.5 trillion of a total $28.5 trillion. 38 For mall owners, the concern is that online sales are growing faster than in-store business. In fact, in a June survey by United Parcel Service, shoppers for the first time said they make more purchases online than in stores. 39 And every year that brings an increase in e- commerce will see a corresponding dip in the revenues of physical stores. That trajectory led Green Street Advisors in January to estimate that occupancy rates for non-anchor storefronts in shopping malls will dip to 94 percent in 2019 from 95 percent in 2015. A year earlier, it had predicted occupancy would top 96 percent by then. 40 “Better-quality malls are adapting and should be fine,” the analysts wrote in the January report. But they didn’t say the same for weaker malls, which will have a harder time recruiting replacement anchors as more department stores, on which they rely to lure shoppers to the center, withdraw from malls. Malls typically rely on department stores to drive traffic to smaller “inline” stores. 41 The closing of Macy’s at Northland, in fact, may have been the final blow to the iconic mall. In December 2014, a representative of its management company told USA Today it had no plans to close Northland. In January 2015, Macy’s, Northland’s only remaining anchor tenant, moved out. The mall closed in March. 42 Those larger, upscale malls are “poised for unprecedented success going forward—not in spite of e-commerce, but because of it,” Michael P. Kercheval, the International Council of Shopping Centers’ former president, wrote in a 2014 industry report. 43 Page 7 of 25 Shopping Malls SAGE Business Researcher
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Vacancy Rates Among Retail Spaces
Shopping centers have higher vacancy rates than malls
Notes: “Mall” includes lifestyle centers, regional malls and super-regional malls. “Power centers” are outdoor “big-box malls” that are dominated by
large discount department stores. “Shopping centers” include community centers, neighborhood centers and strip centers. “Specialty centers” include
airport retail, outlet centers and theme or ethnic centers.
Source: Based on data from the CoStar Retail Report, first quarter, 2016, National Retail Market, 2016
Market conditions and vacancy rates for the U.S. retail market changed little in the first quarter of 2016.
Vacancy rates, however, are highest at shopping centers.
Driving that optimism is the fact that stores with a physical presence account for 95 percent of all retail sales, according to management
consulting firm A.T. Kearney. 44 Its survey of 2,500 U.S. shoppers concluded that “brick-and-mortar is the future of modern retail,” and
noted that two-thirds of shoppers who buy something online visit a physical store before or after the sale for five reasons:
Consumers prefer to shop in stores for apparel, accessories, health and beauty products and furniture.
For items they want to try out, such as electronics, or try on, such as shoes, they visit stores.
Because they can carry their store purchases home with them, shoppers prefer to conduct the transaction onsite rather than online,
which requires them to wait for delivery.
Consumers like to pick up their online purchases in stores rather than having them shipped to their homes.
Shoppers who return merchandise, whether bought online or in a store, prefer to return it to the store.
The takeaway from this and other studies, researchers say, is that online and in-store shopping are equal contributors to the same bottom
line for retailers that offer both. While a retailer’s online success may allow it to occupy fewer, and smaller, stores in malls, it is unlikely to
obliterate the need for physical selling floors—or for malls.
Conversely, online-only retailers, stung by profit-sucking shipping costs, are increasingly opening brick-and-mortar stores. So-called
“evolved retailers” like Amazon, eyeglass retailer Warby Parker and men’s clothier Bonobos have found that a physical presence boosts
their online sales by up to five times. 45 “If you want to increase the traffic to your website, open stores,” said Scott Galloway, founder of
New York-based digital benchmarking firm L2, who called “pureplay”—retailing in either a physical or online space, but not both
—“dead.” 46
Yet one newcomer to U.S. retailing—Dublin, Ireland-based Primark, with stores in downtown Boston, King of Prussia Mall and Danbury
Fair Mall in Connecticut—does not sell any of its ultra-low-priced apparel online. Its executives have said the cost of shipping has, for the
47-year-old chain, rendered e-commerce “not a profitable avenue.” Yet its sales are growing. 47
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More typically, mall operators are encouraging the convergence of their
tenants’ online and physical presence. They are recruiting stores that
subscribe to “omnichannel” retailing, with a nod to Millennial shoppers, who
are accustomed to comparison shopping and product researching on their
smartphones, sometimes while standing in the physical store.
The concept, in simple terms: Shoppers browse the Web to learn about
products; order them online or drive to the mall to buy them; have store-bought
products delivered to their homes, or pick up Web orders in the store; and
return unwanted merchandise either via mail or in the store, no matter where
they made the purchase. Over the December holidays, says McGee of the
International Council of Shopping Centers, one-third of online shoppers
picked up items in stores. Among those shoppers, 70 percent bought
something else while they were at the mall. “That’s not a negative,” he says.
McGee predicts the future of retailing will be “clicks and bricks,” not one or the
other. “I don’t think as a society we’re going to end up in a place where we’re
sitting behind a computer and doing our shopping,” he says. “At least, I hope
that’s not the case.”
Do mall closures hurt the economy?
Economists and retail analysts are engaged in a classic chicken-or-egg
debate: Are mall closures hurting the economy, or is the sluggish economic
recovery in some communities putting malls out of business?
Construction of new shopping centers dipped in 2013 to its slowest pace in
40 years, according to the latest figures from the International Council of
Shopping Centers. 48 By 2015, 60 million square feet of new retail space was
under construction, compared with 150 million square feet in 2007. 49
Fewer new shopping centers, when combined with mall closures in a
community, mean a loss of jobs and tax revenue. Nationwide, shopping malls
and centers of all sizes employ 12 million people, or 9.3 percent of the U.S.
workforce. And for every 100 employees at a regional shopping mall, up to 30
additional local jobs are created at businesses that either supply the mall or
After coming to dominate the retail sector through online-only sell to the workers. 50 The shopping center industry generates $141 billion a
sales, Amazon opened its first brick-and-mortar store in Seattle year in tax revenue, McGee says.
in late 2015 in an effort to boost its online sales. (George
Rose/Getty Images) The loss of a shopping mall could make a community less attractive to
homeowners and, by extension, to new restaurants, businesses and service
providers, says Maureen McAvey, who until June 30 was the Bucksbaum
family chair for retail at the Urban Land Institute, a Washington, D.C., think tank. “In some cases,” she says, “the neighborhoods around [the
closed mall] have deteriorated, become less dense.” But that downward slide is likely to have begun before the mall closed, not because it
closed, she says.
On the other hand, the construction slowdown is correcting an oversupply of retail space, which is heating up competition among malls. As
a result, the quality of stores is improving at malls that survive, leading to higher sales per square foot and allowing owners to collect higher
rents. In turn, mall owners pay more in taxes, which could lead to greater prosperity in the communities they serve.
But those communities are likely to already be more affluent than the ones that are losing their malls. When the earliest regional shopping
centers and the first indoor mall opened in the 1950s, the American economy was strong. Between 1947 and 1975, the growth of
household income was between 86 percent and 90 percent, regardless of earnings bracket. Between 1975 and 2010, that changed,
according to University of Maryland economist Melissa Schettini Kearney. Families with the lowest incomes reaped gains of just 3.7
percent, while incomes rose 57 percent for those in the top 5 percent. 51
The 2007-09 recession accentuated the gap between the haves and the have-nots. Between 1999 and 2008, the number of suburbanites
living in poverty grew five times faster than the number of poor city dwellers. 52
Those people “can’t go to fancy malls,” says Davidowitz of Davidowitz & Associates. “That’s where we are. We’ve destroyed the middle
class, and they’re trading down,” shopping at outlet centers and Walmart instead of at the mall.
Mall historian Ortega agrees. America’s middle class, she said, is disappearing along with the suburban shopping malls built to service it.
And a dead or dying mall can make a struggling community’s situation worse: “Boarded-up malls sit by the highway and function like
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All Rights Reserved. billboards that say, ‘Disinvest here.’ Ultimately, the rise of dead malls undermines the communities in which they are located, fueling further disinvestment and sprawl,” said historian Robert Fishman. 53 For that reason, said Richard Rhodes, president of Austin Community College in Texas, whose school purchased the failing, 1.2 million- square-foot Highland Mall, a deteriorating mall might be worse for the local economy than a dead one. “What happens when a mall begins to deteriorate and no longer functions as a mall?” he said. “In the surrounding neighborhoods, you begin to see the crime rate increase, other homes and buildings being vacated—the whole community surrounding it begins to deteriorate.” The Austin space will soon be part shopping center, part college and part regional workforce center. 54 The increasing “bifurcation”—to use an economists’ term—between thriving, Class A regional malls, which cater to the moneyed, and all others mirrors the expanding U.S. income divide. Stores that target the working class, such as Sears, Kmart and JCPenney, are abandoning their anchor spots in middle-of-the-road malls, further endangering them. But McAvey says communities whose malls fail will get their needs met elsewhere. A failed mall, she says, might have been important to its community, “but it was not meeting 100 percent of the community’s needs, because if it was really thriving, it would not have shut down.” Not everyone agrees. Civic leaders in Landover, Md., decried the closing of Landover Mall in 2002 as a snub from retailers. Once the region’s largest indoor mall, the 1.2 million-square-foot location, which was situated in a black, working-class community, lost its department store anchors and several inline retailers to the newer Bowie Town Center, located 15 minutes away in a more affluent neighborhood with less crime. “It’s an insult,” one prominent dentist told The Washington Post. “You’ve made money off of us for years.… When you take it out of the neighborhood, it’s a part of the community that’s dying.” 55 Some of that suburban mall business is headed back to the cities and to communities’ old Main Streets. “The good news,” says McAvey, “is in the bigger cities, you’re seeing thriving downtowns.” Architect Shook agrees: “The great cities are coming back,” he says. Still, he adds, “Not everyone can live in our cities, so we will be building more suburbs. The question is: What kind of suburbs are we going to build?” His hunch, he says, is that they will not include new, indoor shopping malls, but will be walkable communities that mingle shopping, restaurants, services, homes and jobs. He points to the mixed-use Birkdale Village, 12 miles north of Charlotte, N.C., as an example of “the way we have to go.” Background Early Birds Merchants have clustered in central spots to sell their wares for centuries. In fact, the first shopping districts can be traced to ancient Roman forums. One of them was Trajan’s Market. Now in ruins, the forum was designed by Apollodorus of Damascus, a Syrian-Greek engineer, and built around the year 107. It is considered the world’s oldest shopping center. 56 The Grand Bazaar of Istanbul, built between 1455 and 1461, continues to operate; it’s one of the world’s largest shopping centers, and its 5,000 covered shops attract more than a quarter million visitors a day. 57 Medieval market towns, squares, bazaars and seaport commercial districts had one thing in common: a central location, a necessity in an age when shoppers got around on horseback or by foot. That concept carried through the centuries. By the turn of the 20th century, the American shopping hub was the downtown department store. The central business district of every major American city had one: often a dominating building with dozens of elevators and escalators, and sometimes large enough to fill a full city block. The original, 13-story Marshall Field & Co. in Chicago, for instance, filled more than three-quarters of a large city block when it opened in 1914. 58 In Detroit, the sprawling J.L. Hudson Co’s flagship store had 25 floors of retail when it opened in 1911 and was the world’s tallest department store. 59 Even then, not all downtown employees lived in the city; many moved into sparsely settled communities that were free of the congestion, pollution and crime of cities. They commuted to their jobs from those early suburbs via street cars. Likewise, housewives rode street cars when they traveled downtown to shop. But it wasn’t long before those early suburbanites had less of a need to venture into the city. As their numbers increased and transportation improved, convenience stores and small grocers began opening clusters of shops on the edge of suburban streets along streetcar routes. Riders could hop off, pop into a store just steps away from the track for a purchase and then climb aboard the next trolley. Yet they still ventured downtown to shop for everything except groceries and day-to-day necessities. Suburbs at the time “were still ‘sub’ urban,” said architect Ortega, who wrote her Columbia University master’s thesis on “The Rise of the Mall.” “Suburban communities relied on their downtown as a place to work and shop.” So streetcar shopping strips stocked limited goods “with the understanding that the regional city was the locus of all shopping needs.” 60 That began to change when Americans started to drive automobiles. Those sparse streetcar strips gradually expanded their offerings so suburbanites could do more of their shopping in their own neighborhoods. As early as 1896, a strip in the affluent Baltimore suburb Roland Page 10 of 25 Shopping Malls SAGE Business Researcher
©2021 SAGE Publishing, Inc. All Rights Reserved. Park built its stores far enough away from the street to make room for a few cars to park out front. In 1907, developer J.C. Nichols began building small clusters of neighborhood stores away from trolley routes in Kansas City’s upscale Country Club District. 61 By 1916, shoppers from all over Illinois were traveling by car to Market Square in Lake Forest north of Chicago, which the National Register of Historic Places has designated as the country’s first planned shopping center. 62 Then, in 1928, the Grandview Avenue Shopping Center in Grandview Heights, Ohio, became the first U.S. “regional” shopping center with an integrated parking lot. 63 Just two years later, Sears, Roebuck & Co. started building hundreds of freestanding department stores alongside suburban streetcar strips, which began the strips’ expansion into what would eventually become today’s “strip malls.” Sears made the move, in large part, in response to the successful efforts of larger, more powerful department stores like Hudson’s to keep the chain from building downtown. 64 As drivers began to clog city streets in the 1920s and 1930s, more shopping centers appeared in a growing suburbia. Still, department stores other than Sears and Montgomery Ward were unwilling to open branches outside of cities, so most of the new shopping centers were small neighborhood centers, anchored by grocers and convenience stores. And investors remained wary of the high cost of developing even this new kind of retail outlet, let alone full- scale regional shopping centers. The Great Depression and World War II further delayed the expansion of Mall historian Lauren Ortega: Until the automobile came along, suburban shopping centers. 65 When the war ended in 1945, just a few suburbs “were still ‘sub’ urban.” hundred shopping centers, mostly small neighborhood strips, dotted the country. But a decade later, there were almost 3,000, mostly strip malls. 66 Game-Changer By the late 1940s, more than 2 million automobiles were on the road, the suburban population was growing faster than urban downtowns and postwar consumers were splurging on appliances and other goods that had not been available during the war. 67 In response, suburban shopping centers became larger and more numerous. Supermarkets owned by chains and full-size department stores replaced small grocers as tenants. Planned, regional shopping centers measuring 300,000-plus square feet and housing two large “anchor” department stores, along with 30 or more smaller shops, opened in the suburbs of Raleigh, N.C., Seattle and Boston. 68 By the early 1950s the number of regional shopping centers totaled about two dozen and could be found on the outskirts of cities from San Francisco to Framingham, Mass. 69 The introduction of the first climate-controlled, fully enclosed shopping center in the United States, in Edina, Minn., forever changed American shopping and retailing. The first shopping center to be called a “mall”—a term associated with sprawling, enclosed centers— Southdale Center, located 10 miles from downtown Minneapolis, became the template for approximately 1,500 enclosed malls built over the next 50 years. Architect Victor Gruen “didn’t design a building; he designed an archetype,” author Malcolm Gladwell wrote of the man commonly described as “the father of the modern shopping mall.” 70 Page 11 of 25 Shopping Malls SAGE Business Researcher
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Southdale Center, in suburban Minneapolis, was the world’s first fully enclosed suburban shopping mall.
Gruen designed the 810,000-square-foot Southdale as the centerpiece of a larger, mixed-use complex of apartments, offices, medical
offices, parks and churches, most of which were never built. 71 He intended the mall itself to mimic the lively town center of his native
Vienna. Its centerpiece was a landscaped courtyard under a large skylight, one of the many features common to copycat malls all over
America.
Unlike other shopping centers, whose storefronts faced the street, Southdale’s exterior was plain and windowless. Display windows and
doors of the structure’s 72 stores, including Dayton’s and Donaldson’s department stores, opened to the mall’s interior, so shoppers who
walked past them could easily enter without going outdoors; Gruen called this design “introverted.” 72 This mall had stores on two floors,
not on a single level like outdoor shopping centers, and featured two tiers of parking for 5,000 cars. Long promenades with elevators at
the far ends of each floor encouraged shoppers to walk and browse.
Malls as Economic Stimulus
Even before Southdale’s opening, the exodus of city dwellers to booming suburban communities reachable by newly built interstate
highways had led big-city department stores to buy suburban plots on which to build their own enclosed, regional malls. One business
writer remarked in 1956: “Shopping centers have popped up like wild onions this year”; developers opened 25 regional malls that year,
more than double the number already open. 73
A 1954 change to the federal tax code spurred the building boom by doubling the speed at which real estate investors could take tax
deductions for the depreciation of new property. Congress approved the changes in an effort to stimulate the economy as post-World War
II prosperity waned. “Developers who had been mulling over the shopping center concept abruptly shifted their projects into high gear,”
said historian Tom Hanchett. “Accelerated depreciation, in plain language, suddenly transformed real-estate development into a lucrative
tax shelter.” 74
The building boom lasted for three decades, during which as many as 45 covered regional shopping malls, with their Gruen-inspired two
stories and expansive parking lots, opened around the country every year and integrated themselves into suburban culture. 75
But developers did not confine the sprawl to the suburbs. During the boom years, “investors didn’t care where the mall was being built,”
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according to an account by the Smithsonian Institution. They were building simply for the tax breaks. Instead of following the population to
the suburbs, mall developers began building on the outer fringes—and the population followed them. 76
By 1970, the United States was home to 306 regional malls. Over the next decade, developers opened 440 new malls, nearly half of them
with “super-regional” status, covering 800,000 square feet or more. The building of smaller strip malls and other open-air shopping centers
kept pace: The count in 1970 was 37,352; in 1981, there were 55,551. 77 A “mall culture” had developed among teenagers whose social
lives revolved around the enclosed plazas. 78
79
America, Hanchett said, had become “the world’s first suburban nation.”
Downtown retail districts suffered with each suburban mall opening because it pulled customers away from the central core. One example:
Greensboro, N.C., lost all four of its urban department stores within four years of the 1974 opening of the suburban Four Seasons Mall. 80
Around the country, headlines at the time called city centers “eroded” and “decayed.” 81
By 1978, two years before Gruen died, the architect who started it all said he regretted doing so. “I am often called the father of the
shopping mall,” he said in a speech. “I would like to take this opportunity to disclaim paternity once and for all. I refuse to pay alimony to
those bastard developments. They destroyed our cities.” 82
Beginning of the End
A two-year recession beginning in 1980 tempered the building frenzy; between 1981 and 1986, just 117 new regional malls opened. 83
As the market cooled, North American mall makers looked overseas, exporting the indoor mall template to Europe, Asia, Kuwait, Dubai
and elsewhere, where fewer—and, in some spots, no—malls existed. Mall construction abroad, however, never reached domestic levels.
The United States has more than 100,000 shopping centers of all sizes; Spain, by comparison, has 424. 84
Between the early 1980s and the recession of the late 2000s, enclosed mall openings dipped from more than 40 a year to fewer than 10.
Since the recession ended in 2009, no more than five malls opened in any year. 85 In 2006, before the start of the latest recession, 40
malls went dark, Green Street Advisors estimated. In mid-2009, the firm projected that at least 100 would close by that December. 86 In
the meantime, construction of new, enclosed regional malls screeched to a halt. 87
Still, traditional malls weathered the recession better than open-air centers, including neighborhood centers and lifestyle centers. By 2010,
the top tier of indoor, regional shopping malls outperformed all other kinds of shopping centers financially. 88 And in 2012, construction on
a trickle of new malls began again after a hiatus of more than five years.
Like enclosed regional and super-regional malls, strip malls continued to expand in size and in number and are by far the most common
kind of shopping center in the nation. What started with a couple of necessity shops here and there at the turn of the 20th century had
mushroomed into a collective 300 million square feet of one-stop convenience shopping nationwide by 1970. In 2016, 68,730 strip malls,
often anchored by a grocer or a drugstore, occupy 900 million square feet across the country. 89
Other alternatives to big-mall shopping sprung up over the years as well:
Outlet Centers. Clothing and shoe manufacturers more than a century ago opened the first small outlet stores, located right at the
90
factory, to sell damaged or unsold products to their employees at a discount. In 1936, men’s clothing manufacturer Anderson-
Little built the first outlet stores that were not located on a factory site.
In 1974, women’s lingerie maker Vanity Fair opened the first outlet center, in Reading, Pa., with room for its own outlet shop plus those of
several other clothing companies. 91 Four years later, real estate developer Belz Enterprises opened the first enclosed retail outlet center
in Lakeland, Tenn., far from any suburban shopping mall. The first enclosed mega-outlet center, Potomac Mills, opened in Woodbridge,
Va., in 1985. 92
Outlet centers have been among the fastest-growing shopping centers ever since. Most retailers no longer offer only “seconds” in their
outlet stores; rather, they design and manufacture apparel and other goods to sell at a discount to shoppers who otherwise might not
consider—or be able to afford—making name-brand purchases.
Power Centers. “Big box” stores such as Target, Best Buy, Bed, Bath & Beyond and Home Depot began clustering in power
centers in 1986, when San Francisco developer Terranomics opened 280 Metro Center in Colma, Calif. 93 Since, then, more than
2,000 of the 250,000- to 600,000-square foot shopping centers have appeared, featuring “category-dominant” stores—retailers
selling a single product in a large store—that price-conscious shoppers can’t find in malls. 94
Typically, shoppers visit just one store per trip to an open-air power center. The shopping center industry refers to these stores as
“category killers” because once a category-dominant store opens, other stores that sell the same type of goods can’t compete. 95 The
International Council of Shopping Centers estimates there are 2,253 power centers across the country today. 96
Lifestyle Centers. Caruso’s The Grove made the term “lifestyle” center popular in 2002, when the 575,000-square-foot outdoor
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marketplace opened in Los Angeles adjacent to the city’s historic Farmers Market. The shopping center surrounds a large park.
High-end stores, dozens of restaurants and 14 movie theaters are among The Grove’s attractions, along with the city’s tallest
Christmas tree, an internal trolley car system and a musical fountain. 97
Such lifestyle centers have actually been part of the American shopping landscape at least since 1970, according to the International
Council of Shopping Centers, which counts 466 of them around the country. While most are populated with high-end stores, they are not as
elaborate as The Grove; their average size is 332,752 square feet. Kniffen describes the centers simply as “outdoor, open-air malls,”
noting construction of new lifestyle centers has nearly ceased. ICSC confirms that fewer than 100 new lifestyle centers have opened since
the 2007-2009 recession. 98
Unlike regional shopping malls, lifestyle centers are not enclosed. Storefronts face streets and street parking, and typically are designed to
mimic the style of historic urban rowhouses. And unlike mixed-use town centers—heralded by many in the retail industry as the future of the
shopping center—lifestyle centers are retail-focused and rarely combine apartments, offices and entertainment venues in the same
structures as the stores.
Current Situation
Hands-on Owners
The future of the mall is coming down in many cases to the savviness of its owner and managers. Consider what happened at Mall of
America in Bloomington, Minn., one January afternoon two winters ago when the wind chill was 40 below zero:
The mall, the largest in the United States, was nearly empty, and store managers called on the operator to shut it down. Instead, its social
media team sent out an invitation to past shoppers, offering free admission to the mall’s indoor amusement park. A couple of hours later,
100,000 people were lining up for rides, eating at the mall’s restaurants and shopping at its stores. Calls from retailers continued to pour
in, but now they were begging management not to close early. 99
A decade ago, the mall’s owner, Triple Five, might not have had access to shoppers’ contact information; most management companies
traditionally have left it to department stores to collect customer data and reach out to them with their own promotions. But today, mall
owners, especially large ones, have developed a direct relationship with their tenants’ customers and are leveraging it to get more
shoppers through their doors.
“Shopping mall operators used to be very passive,” Envirosell’s Underhill says. “ ‘I open the mall, I sign the deal, I keep the mall clean, I
make sure the spaces are full. That’s what my job is.’ ”
But now, owners are “much more activist,” he says. “There’s a difference between somebody sitting back and being a landlord and
somebody being proactive about the health of their property. The more proactive the owner is, the more likely the mall is to be a success.”
Like individual stores that offer discounts and freebies to frequent buyers, most large malls have started their own loyalty programs to
reward customers who regularly spend money at the mall. Aside from increasing the number of mall visits, the owners are collecting data
about shoppers who sign up for the programs—which stores they shopped at, what they bought, how much they spent and how often they
dropped by in a given month. Then, they use that intelligence to target ads, social media messages, coupons, surveys and other
communications.
Underhill points to Simon Property Group, General Growth Properties and Tabuman Centers—the first-, second- and fifth-largest REITs
involved with shopping malls—which train on-site mall managers to help troubled tenants with everything from designing more compelling
window displays and in-store signs to incorporating technology into the physical shopping experience. 100 And, he says, “retailers are
receptive to that.”
In fact, says retail consultant Lewis, they’re demanding it. “Real estate people, they are one step removed from the consumers, so it’s
taking them longer to understand this,” he says. “They are now being cajoled and confronted by retailers to change their structure as well.”
Brown of A.T. Kearney agrees. A Kearney survey asked retailers what they want from mall operators. “They said: ‘I need you to generate
traffic,’ ” he says.
To that end, more than 30 malls owned by six of the largest REITs offer same-day delivery of items purchased in their tenants’ stores.
Shoppers who don’t want to carry their packages home from the mall may opt to have them delivered later that day. Some malls also have
curbside pickup services—sometimes called “click and collect”—for shoppers who order online but want to pick up their items at the mall
without leaving their cars. 101
And mall owners are taking credit for the concierge-like service. “Big developers are now branding their projects as their name; so that
they have … their names on the door now, too,” Elizabeth I. Holland, CEO of property management firm Abbell Associates and chairman
of the International Council of Shopping Centers, said at the trade association’s 2016 convention. “It puts more rubber on the road for
102
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102
everybody.” The strategy, she said, is working.
Cutting Edge
In Westfield Corp. shopping malls around the world, the mall developer, which
manages $29 billion in assets, is experimenting with technology that could
change the way customers shop.
Through Westfield Labs, the company’s technology innovation unit, the
developer is testing what Westfield co-CEO Steven Lowy has called “a
wonderful physical and digital experience that is comparative to no other form
of retail. 103
That experience begins before a shopper who has signed up for it leaves
home for a trip to the mall. Shoppers can plan their trips by doing an online
search of the physical inventory available at every store in the mall and
creating a wish list of wanted items.
As the customer pulls into the parking garage, she receives a welcome text
from the mall and a camera snaps a photo of her license plate. Another phone
message directs her to a parking space near the stores she plans to visit.
Later, another text will remind her where she left her car.
Once inside, the shopper checks in at a digital kiosk, which directs her to the
location of the stores that have the products on her wish list and sends
coupons to her phone. It notifies her if an item she has saved in an online
shopping cart is available at the mall. If she sees something in the store she
likes, she can scan its barcode with her phone and add it to her wish list. She
can preorder lunch or coffee from a mall café, where it will be waiting for her at
the time she chooses. And a hands-free shopping program frees her from
carrying her purchases around; the mall will have them delivered to her car or
to her home.
Retail Space Under Construction
First quarter 2016, in square feet
Consultant Robin Lewis: Offering new experiences to shoppers
is “the only thing that is going to save the day.”
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