Issue 24ResearchRetail Ode to Retail: Death of the Traditional Mall

By Lee Peterson

A demographic bellwether, the city of Columbus, Ohio, has long been a favored test market for brands. When restaurants tweak ingredients for a new breakfast sandwich, or a retail chain tests a new store format, it’s often this Midwestern city, the nation’s 15th largest, where they do the fine-tuning.

In this way, Columbus makes an ideal place to explore why malls are dying at such a rapid clip, more than two dozen malls in the US shuttered since 2010, according to The New York Times. A typical market, with a mix of incomes, races and suburban and urban areas, Columbus operates as a microcosm of America, and therefore wider trends. A tour of this city’s retail mall ruins begins in the downtown core.

The once booming three-level, 1.2 million square foot shopping mall was recently razed after a little more than two decades in operation; it is now a nine-acre community park. On the west side of town, the local mall has been abandoned and a mid-tier casino was built nearby. The indoor mall on the east side has been in such distress, its former owner recently walked away, signing the deed over to the bank in lieu of foreclosure. Finally, on the city’s north side, the shell of the local mall now houses, government offices and a county dog shelter.

The story of mall life in Columbus, one of former bustling centers of commerce transformed into parks, casinos and dog shelters is not unique. Many vital centers of commerce and social life are no more, and no one is building new ‘malls’. Not only has it been more than a decade since an enclosed mall was built in the US, but some analysts predict as many as half of all the nation’s remaining enclosed malls will close within the next decade.

There is plenty of evidence that suggests the bloodbath is just getting started. In the last year, major department store brands in an unprecedented wave have announced major store closings: Macy’s (100); Sear’s (50); and Kohl’s (18). Such dismal announcements follow the closure of 74 JCPenney locations over the last two years. Analysts warn of an inevitable “death spiral.” One recent report estimates up to 800 department stores could shut down in the next decade. It’s a dismal prediction—especially since 800 stores represents nearly 20% of all the anchor spaces still in operation at US malls. There were once roughly 1,500 regional malls nationwide, but in the coming decades, there may be as few as 300. In other words, we’ve not seen anything yet.

There is no shortage of opinions about why American malls are dying, with the most frequently named threat being Amazon. Other scapegoats often mentioned in the next breath include: An overstored retail environment; consumers conditioned to expect discounts to make any purchase at all; and the rise of outlets malls. Of course, increasing income inequality is also hammering mid-market stores and malls, while benefiting luxury and destination malls rated A++, which are still doing well. (This is the case in Columbus, where two A++ malls thrive: Easton Town Center, opened in 1999, drawing 25 million shoppers a year; and Polaris Fashion Place, a traditional mall built in 2000, with 1.5 million square feet of retail space.)

It would be a mistake to be too unwieldy in assigning blame. Store closures on such a big scale are mere symptoms, signaling much more than the end of an era. Such a colossal and swift end to a ubiquitous and profitable retail format can, at least for the purposes of focusing future strategies, be lumped under one overarching cause: A massive shift in what consumers want from stores. I would also argue our obsession with dead malls has resulted in too many retail players learning the wrong lessons from the decline of this format. Instead, we should be asking what meaningful insights—not just doomsday scenarios—we can glean from the enclosed mall’s demise. Retailers after all need actionable strategies to remain viable, vibrant and relevant.

Is the death of the mall in America the end of the mall?

No, it’s the end of cookie-cutter and strictly mall-based store growth. Brand expansion based on chain store rollouts simply doesn’t work anymore, but malls will survive. They just won’t be malls in the traditional sense. They will be community gathering places first—and places for commerce second. Consider the Bikini Berlin concept shopping mall in Germany, located in West Berlin near the city zoo. What’s missing? Chain stores. There isn’t a single one to be found in this former factory transformed into a cultural and commerce hub. Yes, there are pop-up boutiques and a rotating mix of designers, but there are also entertainment aspects like an ice-curling rink in the winter months. “Our customers might have somewhere else where they buy all their life essentials,” the creative director at Bikini recently said. “But they come to Bikini Berlin to get inspired, be entertained; have a two-hour vacation.”

Why are retailers so focus on comp-store sales instead of new store expansion to measure brand health? Is profitability the only thing that matters now?

Of course profitability matters, but we are still measuring stores the wrong way. The obsession with comp-store sales must finally come to an end. The whole idea of the store has changed, so why would we measure stores like we did in 1980? Few physical stores can rake in the kind of profits once possible in the heyday of the American mall. There wasn’t Amazon and showrooming or widespread discounting. Yet, the expectations for sales growth and store profits remain the same. It’s time to combine online sales with offline sales and end the two-channel binary. The lesson should be fewer stores, but better stores, with a focus on using brand experiences inside the physical store to drive online sales.

Is it time to stop opening new stores?

On the face of it, that seems to makes complete sense. “Hey, Urban Outfitters, Stop Opening New Stores,” screamed a recent Bloomberg headline on a story outlining how Urban Outfitters, along with Pier 1, Bed, Bath & Beyond and Staples were posting growth, not from new stores, but online sales. Retailers—to remain relevant in the lives of consumers—must always operate and open new stores; however, the definition of what constitutes a new store or location needs to be reexamined. The fact is too many retail brands are still opening the wrong kind of store—big and inflexible, without enough versatility to adapt to tech innovations and shifting consumers demands.

It’s time to drastically ratchet down our expectations of the life-cycle of a typical store. Yes, pop-up shops are popular, but we need something between a pop-up shop and a massive, capital intensive permanent structure that costs millions, not to mention takes years to plan. Moreover, store brands need a way to have more seasonal flexibility. Perhaps, brands might even consider whether keeping a store open 12 months out of the year makes sense when the bulk of sales and profits happen in November and December. Additionally, too many high-end department store brands (in order to survive and grow) have gone down-market, appealing to a wider swath of the American consuming public with discount and outlet stores. Nordstrom has only opened about one traditional anchor location a year in recent years, and runs nearly twice as many discount Rack stores as it does full-price stores.

Do real estate location choices doom retail centers?

It’s about more than that. The old mantra of location, location, location doesn’t hold anymore. More than convenience matters for consumers. It’s about creating location destinations that are worth the drive, not merely on the drive to somewhere else. To regain a relevant role in consumers’ lives commerce centers need to reject the traditional real estate investor mindset, and try adopting the mindset of the concert promoter. Instead of hiring from the real estate world, where the obsession is with short-term gains, try hiring people who understand promotion, and how to build and retain a vital role in people’s lives. It’s not about managing a chunk of real estate space, but figuring out how to draw in crowds.

By learning the right lessons from the end of the mall, retailers can learn something bigger about the future of consumer culture as a whole, instead of simply taking a nostalgic tour through a past that can never be again. The question all brands must ask now is this: What is the new story of their brand? A good answer offers a fresh narrative, one about something much more compelling than mere survival.

Lee Peterson

Executive Vice President, Thought Leadership, Marketing

WD Partners Executive Vice President, Thought Leadership, Marketing

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