Enclosed shopping centers, long the cathedrals of American consumerism, are closing their doors by the hundreds as the recession continues to clobber retail sales. Is America’s love affair with the mall over?

Are malls dying?

The vital signs are not good. Even before the recession hit, consumers had developed mall fatigue, and the classic enclosed shopping mall was in decline. More than 400 of the 2,000 largest malls in the U.S. have closed in the past two years. The last new major mall in the U.S. opened in 2006, and only one big mall is scheduled to open this year—the troubled Xanadu mega-mall in Rutherford, N.J. (See below.) With some 150,000 retail stores projected to fail in the U.S. this year, more mall closings are imminent. Mall mainstays such as Mervyn’s department stores, Linens ’n Things, and KB Toys have already disappeared into bankruptcy, and mall vacancy rates topped 7 percent last year, the highest level since 2001. “It’s an absolute disaster,” says Howard Davidowitz, an investment banker specializing in retailers. “What a mall represents is discretionary spending, and discretionary spending is in a depression.”



Is it really that bleak?

The data suggests that it is. For decades, American consumers could always be counted on to spend more than they did the year before—the only question was, by how much. But in the past 12 months, retail sales in the U.S. have dropped an unprecedented 9.8 percent. The economic collapse has landed especially heavily on the old-line department stores, such as Sears and JCPenney, that anchor many malls. As their sales and profits have tanked, they’ve been pulling out of malls, to the distress of the smaller merchants that depend on the larger stores to feed them traffic. The Turfland Mall in Lexington, Ky., recently lost Dillard’s as an anchor tenant, setting off a cascade of closings. “We have no choice but to leave now that Dillard’s is leaving,” says Bill Parker, who just closed his shoe store.

Have people simply stopped shopping?

No, but they’re increasingly patronizing discounters such as Wal-Mart and Target, not the full-price department stores and high-end boutiques. Sales are growing at Wal-Mart, where shoppers can pick up groceries, fill their prescriptions, and buy socks without leaving the store. Many consumers are also shopping online. “I can’t take a couple of hours out of my weekend to drive down and browse the mall,” says Burlington, N.J., teacher Kari Holderman. Hard times have also meant that consumers are passing up the nonessential items that malls specialize in—things like scented candles, $25 baseball caps, $250 back massagers, and battery-operated guinea pigs spinning on exercise wheels. “The most important fact about our shopping malls,” says social scientist Henry Fairlie, “is that we do not need most of what they sell.”

What happens when a mall dies?

It can devastate the surrounding community. The mall’s site can rapidly turn into a wasteland of overgrown weeds, cracked concrete, and stray animals, with looters picking sites clean of copper tubing, light fixtures, and anything else that can be sold for scrap. When the Riverside Center in Utica, N.Y., closed around Christmas 2007, its owner didn’t even bother to take down the holiday display. The following July, says Peter Blackbird of Deadmalls.com, the roof sprang a leak that drenched the display’s cotton “snow,” which quickly “turned into mold stew.” The fallout goes beyond aesthetics, of course. When a mall closes, unemployment rolls in the region swell, and the loss of property, sales, and business taxes can leave municipalities with serious shortfalls. The city of North Randall, Ohio, is nearly bankrupt following the closing late last year of the Randall Park Mall, once the largest mall in the Cleveland area. “It could simply cease to exist as a city,” says Cuyahoga County Commissioner Peter Jones.

Will anything replace the mall?

Some are being razed to make room for “big box” stores such as Home Depot and discount clubs such as BJ’s and Costco. Still others are being turned into open-air “lifestyle centers,” ersatz Main Streets to replace the real Main Streets that were decimated when malls lured away their customers in the first place. The stores in these centers are at ground level and have entrances facing the street, which helps boost store traffic and sales. Like real Main Streets, lifestyle centers include restaurants, movie theaters, and pedestrian plazas, as well as shopping. The amenities “draw the consumer in for reasons other than to just purchase items,” says Erin Hershkowitz of the International Council of Shopping Centers.

If malls go, could downtowns come back?

In this economy, not likely. Some developers have already tried building “lifestyle centers” in downtown areas left blighted when stores and shoppers fled to the outskirts. But there is no single “big fix” that will pump life back into downtowns full of boarded-up stores, says development expert Teresa Lynch. That means some communities will soon be without a mall or a thriving shopping district, leaving them with no central gathering place. “One of the biggest consequences of mall closings is the loss of a sense of community,” says David Birnbrey of The Shopping Center Group, “a place where people gather and socialize.” And exercise. Retirees Dick and Anne Saplata work out by walking around the largely empty halls of the Metcalf South Mall in Leawood, Kan. It’s likely to close soon, and there’s talk that a developer will raze the place. If the mall goes under, Dick Saplata asks, “where are we going to walk?”

The last mega-mall?

Talk about bad timing. June is supposed to mark the opening of the Xanadu mall on a stretch of New Jersey swampland just across the Hudson River from Manhattan. But it might not happen. When developer Larry Siegel broke ground on the $2.2 billion, 2.4-million-square-foot mall in 2004, he promised that Xanadu would be the ultimate “shoppertainment” experience, with an indoor ski slope, a fishing pond, and even a 30-foot-high chocolate waterfall. But as the recession has deepened, plans have been repeatedly scaled back. Prospective tenants, including Virgin Megastore and Borders, have bailed out, and no anchor tenants have yet been signed. Siegel is vowing to carry on. “We’re not building this for the next 18 months,” he says “but the next 50 years.” The chocolate waterfall, though, has been scaled down to 4 feet.