If you put one or more buildings together and form a complex of shops representing merchandisers, add to that interconnected walkways enabling visitors to walk from unit to unit, you get what is known as the great American shopping mall.

1,500 malls were built in the US between 1956 and 2005, and their rate of growth often outpaced that of the population. They replaced main street and became the epicentre of communities, the foundation of retail economies, and the place for teenagers everywhere to see and be seen.

At the heart of these malls has been the main stays of American retail, the department stores. They have been come to be known as the “anchors.” Every mall has them and it is these stores that make up a large portion of the retail space being dominated by one brand. Without them, there is a very large hole to fill.

Malls became so popular over the years that everybody wanted in until the point where the market became saturated. “We are over retailed,” according to Ronald Friedman, a partner at Marcum LLP, which researches consumer trends. There is an estimated 26 sq. ft. of retail for every person in the US, compared with about 2.5 sq. ft. per capita in Europe. Howard Davidowitz, famed retail analyst says, “the US has 5 times more retail space per capita than that of Japan, Canada, UK or France.”

Like anything else, the good times were bound to come to a halt. By the mid-2000s, the decline began slowly. The rise of the internet brought with it the rise of online shopping. The financial crisis of 2007 - 2008 brought a blow to retail that led to a drop in sales and foot traffic at big-brand retailers like Sears, JCPenney and Macy’s that anchored many of the country’s malls. Between 2010 and ’13, mall visits during the holiday season, the busiest shopping time of the year, dropped by 50%. It is clear from the chart below that Sears was badly wounded in 2007 and never recovered, in spite of all the promises of Eddie Lampert to turn the struggling retail giant around.

When Sears merged with K-Mart in 2005, the two chains had a total of 3,500 US stores between them. As of May 5, 2018, Sears Holdings operates 894 retail locations under the mastheads of Sears (506 full-line and 23 specialty stores, for at total of 529 locations) and Kmart (365 locations), though after a round of closures announced on May 31, that number will drop to about 820.

In August 2016, Macy’s announced the planned closure of 100 stores, or about 15% of Macy's store base at the time.

JC Penney has about 600 mall-based stores and another 400 smaller standalone stores in smaller markets. JC Penny announced and closed 140 stores back in 2017. The King of Prussia Mall is a 2.8 million-square-foot shopping center outside Philadelphia. The 50-year-old complex has more than 50 food venues and a concierge lounge. However, a J.C. Penney department store closed in 2017 as one of the planned closures, created a hole in the anchor-store lineup.

The closings of these stores are having an obvious impact on shopping malls across America. The malls that are not able to find an anchor to replace the legacy department stores are seeing their foot traffic dry up as the remaining stores in the mall close up or move, leaving an empty shell. Industry experts say 25 percent of US malls likely will close in the next five years, or about 300 out of the existing 1,100.

According to a recent Credit Suisse report (Credit Suisse US Retail Store Closure Index), 2018 is on track for another peak footage closure year. It shows the US retail industry is tracking to an annualised, -59% YOY reduction in store unit closures in 2018 (after hitting an all-time high in ‘17). The closures are skewing toward much bigger box concepts (Toys R Us, Sears, Sam’s). The report states, “We expect elevated closures to remain a primary operational distraction and stock risk for the US retail space for several years.”

A report by Cushman & Wakefield, states, "There were nearly 8,500 store closures in 2017, surpassing the number that occurred during the Great Recession. Closures in 2018 are expected to match or exceed that level. Announced store closures have reached approximately 4,500 year to date." Cushman & Wakefield estimates that this figure will reach over 9,000 this year.

As we have seen many times before, there is also that familiar Gorilla at the front door waiting to make its mark on the brick and mortar market! Jeff Bezos and Amazon are making inroads into the apparel space. According to Morgan Stanley, the e-commerce giant will become the top player of the US apparel industry in 2018, having gained 1.5 percent of market share last year. To date, Amazon trails only Walmart to claim the top spot among other apparel retailers Target, Kohl's and TJ Maxx.

Should this be something for brick and mortar retailers to be worried about? Last year Fitch Ratings published a report

that presented how a “hypothetical” rapid rise in Amazon's U.S. apparel market share could have significant credit implications for existing retailers, REITs and CMBS (Commercial Mortgage Backed Securities) transactions.

“The Fitch shock scenario assumes an accelerated three-year apparel market share shift to Amazon.com as a price-competitive and convenient alternative to traditional in-store purchases. The hypothetical rapid growth in Amazon's apparel market share to 25% by 2020 could cut apparel retailer margins by around 300 basis points, pushing several retailers toward financial distress. Assuming Amazon's share gains are concentrated in lower price points, low to mid-tier apparel retailers, including JC Penney, Kohl's and Dillard's, would face intense competitive pressure in such a scenario.”

The focus of our article on troubled anchors did not go unnoticed by Fitch.

“REITs owning regional malls with high exposure to troubled anchor stores and a less diverse tenant base would face heavy cash flow pressure. We estimate that as many as 400 of approximately 1,200 US malls could close or be repurposed as a result of retailer liquidations and square footage reductions.”

Although online has picked up some of this business and will continue to do so, the reduction cannot all be attributable to e-commerce. The desire to grow and get bigger clearly over stepped its boundaries leaving a glut of retail space on the American market. Increasing consumer debt loads in the way of car loans, credit card loans, and student loans are not positioning the consumer to be in any position in the future to come to the rescue. In fact, roughly 10% of employment in the US is in retail. All these additional closing will only put the consumer in a more precarious situation.

The death of the great American shopping mall may be a bit premature, but for the moment it is "Anchors Away" and unless these malls find a way to fill the hole or reinvent themselves fast the future doesn’t look so bright.