The Future of Shopping Malls

The word shopping mall brings to mind certain specific kinds of images. For instance, as soon as the word mall is used, people start imagining a huge retail space filled with name brand departmental stores. Consumers have become used to these kinds of malls for the past 50 years. Also, in the initial years, both American real estate developers, as well as retail chains, reaped handsome rewards as the mall culture spread rapidly.

However, over the past few years, it seems like malls have become obsolete. It is a known fact that one out of every three functional malls in America is likely to go out of business in the next three years or so. Most of these malls are in low-income neighbourhoods. However, the malls in high-income neighbourhoods aren’t doing too well either. There are many critics that believe that the culture of shopping malls is now dead. However, there are also many others who believe that malls are not really dead. Instead, they just need to be reinvented in order to become commercially viable once again.

In this article, we will have a closer look at both sides of the argument.

Argument #1: Shopping Malls are Dead

The argument that shopping malls are dead rests on the principle that online retail is rising at an alarming pace. Companies like Amazon are growing at a rapid pace. This is happening at the expense of other companies such as Macy’s and Sears.

It is a known fact that companies such as Sears and Macy’s are ailing financially and are therefore trying to reduce their store count. Sears has shut down over two-thirds of its stores. The company had over 3000 stores in the past decade, but now it has only 1000! Similarly, companies like JC Penney’s and Target are closing down 50 to 100 stores each year.

The closing of big departmental stores spells doom for mall owners. This is because the entire business of malls revolves around these big stores called anchor tenants. When a mall has a big store as an anchor tenant, it can negotiate better rates with other smaller tenants. The idea is that a lot of people will come to shop at the anchor tenant’s location. This will increase the footfall and hence increase the business opportunities for adjoining tenants.

Thee small tenants usually have co-tenancy clauses in their agreements. This means that if the big stores shut down or move out, these stores can renegotiate their rents. This is exactly what is happening in the United States right now. The big tenants are moving out creating a lot of supply. The smaller tenants, therefore, have more bargaining power and are driving down the rentals.

Argument #2: Shopping Malls Need to be Reinvented

There are many optimists who believe in a different storyline. There is no arguing with the fact that internet is actually making a huge dent in the sales of companies like Sears and Macy’s. However, the internet still accounts for less than 10% of all products sold in the United States.

Majority of the sales still happen through the traditional channel, and this may remain so if the owners of malls are able to reinvent themselves. Shopping malls need to be aware of the fact that they still own some of the most prime real estate in the country. Their real estate is situated at walking distance from most neighbourhoods. Hence, if they are able to offer community spaces with good recreational and entertainment options, they can survive and even thrive despite the onslaught of e-tailing.

Some of the malls that were claimed to be dead or defunct have been reinvented and are doing brisk business. The architecture of the malls has changed from big enclosed indoor buildings. These malls have been retrofitted to create more park-like settings with greenery and open spaces that allow for community events to take place. The idea is that if anchor tenants are no longer there to bring in footfalls, community events should be able to do so.

Also, earlier malls were only shopping destinations. The food options available in the food court were makeshift at best. However, now malls have started taking the foodie culture mainstream. Many real estate developers have started their own full-service restaurants and bars in order to attract the local crowd.

The main idea is to not compete with online sales at all. Online sales offer the cheapest products. Malls should position themselves as venues where customers can get unique experiences. It is a known fact that the millennial generation values experiences and is willing to spend a good amount of money if unique experiences are offered.

Additionally, malls have also started using technology to address some of the main pain points that were faced by the customer. For instance, malls have now started using electronic parking. This means that there are sensors which automatically detect a vehicle when it comes into the mall. All the vacant parking spots are displayed so that the vehicle owners do not have to waste time or experience inconvenience.

The bottom line is that the real estate industry has changed forever. Traditional malls will no longer work. The industry has an option to either abandon malls totally or reinvent itself to suit the needs of the modern consumer.

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The article is Written By “Prachi Juneja” and Reviewed By Management Study Guide Content Team. MSG Content Team comprises experienced Faculty Member, Professionals and Subject Matter Experts. We are a ISO 2001:2015 Certified Education Provider. To Know more, click on About Us. The use of this material is free for learning and education purpose. Please reference authorship of content used, including link(s) to ManagementStudyGuide.com and the content page url.