By: Tomi Kapoor
The brick and mortar retail industry, especially within shopping malls, has begun to crumble brick by brick. The literal ashes of abandoned malls will be the birthing of a new phoenix like entertainment center filling the space. Retail itself will never disappear as brick and mortar shopping has begun to shift online. This shift, however, isn’t going to be as quick as you’d expect according to McKinsey, 80% of retail sales will continue to occur in person. Simply put, the retail industry will slowly be repackaging itself to meet the rapidly changing desires of the consumer.
This year alone, at only the end of Q2, there have already been over 10 retail bankruptcies. Big box retail stores are closing left and right. Brands like Sears, JC Penny, Ann Taylor and many more that are fixtures of American life are fading away. Fixtures that we apparently are no longer keen on keeping. According to Cushman and Wakefield, mall visits have declined 50% between 2010 and 2013. (Keep note that mall visits are declining at a substantially quicker pace than retail sales are expected to.)
The Obvious – Why is it fading?
Waiting in lines just are not consumers’ cup of tea, go figure. However, time is not the only reason consumers are abandoning malls as the number of tools at shoppers’ disposal have grown, making them smarter and more informed. Shoppers can, with the tap of a finger, price match anything, at any store or find comparable goods to make sure they are getting the best bang for their buck. After finding the best deal, they may even be able to get it shipped to their home… without having to pause Netflix. What seems like a bullet proof model is leaving retailers in a place “where comparable store traffic will never increase again for any sustained period of time,” said Steve Dennis of Forbes. Online retailing of today is not as strong as one might expect because of lower margins, shipping costs and substantially higher return rates. Amazon is the top contender to spur that change. Fortunately, or unfortunately, although retail stores are closing they will not completely vanish. Certainly, the property underneath those closing stores isn’t disappearing.
Stores are closing because shoppers are not buying. They are not buying because they can find a better price elsewhere or get their purchase delivered directly to their home. So, what do customers want? Customers want experiences! Travel and hotel occupancy are up. Restaurants substantially out-paced retail and according to Derek Thompson from The Atlantic, in 2016 “Americans spent more in restaurants and bars than at grocery stores.” Thus, as stated in the previous article by Jacqueline Berman, for malls and retail to succeed they must create more experience based options. However, there simply may be too many malls to meet consumer demands as the U.S. has the highest per capita mall square footage in the world, reported by Morningstar Credit Ratings. As a result, many malls will be wiped out for apartments, hotels, or restaurants because demand for housing and travel is only going up as millennials enter the work force. In the malls that do survive, retailers will have to make sure they stay competitive and privy to online retailers.
Regardless of how much retailers reinvent themselves, property managers can no longer interchange department stores with one another. If experience is what today’s consumer wants, experience is what we’ll give them. Turning a mall into an entertainment center and giving the general consumer what a 90’s teenager got out of spending their weekends window-shopping with their parent’s money. An example of this, one of JMA’s acquisitions, the Downtown Commons (DOCO) shopping destination became the new home of the Sacramento Kings entertainment and sports center. Surrounding the Golden 1 Stadium will be a Kimpton Sawyer Hotel, The Residences at the Sawyer, office space, restaurants, a Macy’s and several other retailers expect to open later this year. Retailers like Macy’s are finding homes where there is already a large amount of foot traffic. Mixed use properties have an urban, lively presence that will attract consumers for a multitude of reasons.
Let’s Play Monopoly, Amazon Edition
In case you’re wondering what will fill in the gaps in the retail market, the answer is Amazon. With their recent intention to purchase Whole Foods accompanied by Amazon Fresh grocery and food delivery, they will be able to place a strong stake in staple goods. With Amazon’s recent release of Prime Wardrobe, they will disrupt the retail industry. They also recently patented a custom clothing manufacturing solution, allowing them to custom fit clothing from the manufacturer to the individual shopper and giving them a competitive edge. As a result, Amazon is expected to own 16% of all apparel sales by 2021 according to The New York Times.
While malls are closing and the retail industry is reinventing itself, Amazon is gaining speed, fast. Only time will tell who wins this race.