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As US malls struggle, thriving ones spend millions to reinvent themselves

Gaithersburg, Maryland

ABDUL Mannan was perched on a stool, scrolling through his phone, on a recent afternoon at Lakeforest Mall in Maryland. He was two hours into his shift at a jewellery kiosk and had yet to encounter a single customer.

There was a time, he says, when business was brisk, and the shopping centre teemed with people. But that was before the nearby J C Penney closed this summer. The Lord & Taylor followed a few weeks later, and soon Sears will be gone, too. "Some days, we don't sell anything," he said. "Not one penny. You see the mall? It's empty."

Lakeforest's slow decline mirrors the all-too familiar narrative of the American mall, particularly the mid-tier cookie cutters that proliferated in the 1970s, 1980s and 1990s.

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In their heyday, they were monuments to consumerism that doubled as cultural touchstone, inspiring films like Mallrats and board games like Mall Madness. But in the past decade, as shopping dollars migrated online and a parade of well-known retailers toppled, the malls that did not evolve fast enough stumbled into a devastating cycle of dwindling traffic, lower sales and disappearing storefronts.

As many as one in four US malls is expected to close by 2022, according to a 2017 report by Credit Suisse. Those that are thriving are spending millions reinventing themselves as integrated lifestyle hubs - adding yoga studios, medical clinics and microbreweries - populated with more upscale shops. But such targeted investments are often coming at the expense of mall operators' lower-tier properties - and analysts say the divide between rich malls and poor malls is widening.

"There is an accelerating polarisation between the 'best' and the 'rest'," said Neil Saunders, managing director of research firm GlobalData Retail. "Newer, nicer malls have become magnets for consumers, pulling them away from struggling properties."

As at mid-November, retailers have announced plans to close more than 10,600 stores nationwide, according to real estate research firm Costar; that compares with 5,400 for all of 2018.

Payless ShoeSource, which filed for Chapter 11 protection in February, shuttered all 2,100 of its US stores, while Gymboree and Charlotte Russe have closed more than 500 stores apiece, many of them in malls. US mall vacancies, meanwhile, are at an eight-year high.

Even retailers on relatively stable financial footing, including Macy's, are pruning hundreds of underperforming stores to focus on flagship locations. These closures, analysts say, are also having a disproportionate effect on lower-tier malls and shopping centres, making properties like Landmark Mall in Virgina, a kind of ground zero for America's changing retail landscape.

"Traditionally we kept our shopping separate from our living from our recreation," said Amanda Nicholson, a professor of retail practice at Syracuse University. "That's not what the world wants anymore. Malls need to be more creative about getting people outside their homes. It can't just be stores, stores and more stores."

When it opened four decades ago, Lakeforest Mall was the pride of Montgomery County in Maryland. It had an Olympic-size ice skating rink, a glass-enclosed elevator and an indoor amphitheatre with a water-filled moat. Among its attractions was a 201,000 square foot Sears that could fill just about any household need: power tools, clothes, appliances, furniture, tires, even fine jewelry.

The recent demise of three of its four anchors - only Macy's remains - follows nearly a dozen bankruptcy-fuelled closures since 2017, including Charlotte Russe, Gymboree and Brookstone. Many of the remaining tenants say they're operating on short-term leases.

For decades, malls like Lakeforest tethered their fortunes to department stores with prominent mall entrances and sprawling parking lots, in hopes they would attract loyal shoppers. But as chains like Sears and J C Penney have struggled and closed hundreds of stores, it's had a rippling effect on the malls they once anchored.

These days, the most successful malls tend to be dominated by brands that appeal to higher earners, like Nordstrom, Apple and Lululemon, as well as up-and-comers like Untuckit and Peloton. They also tend to have invested heavily in restaurants, spas and specialty gyms that keep customers coming back, week after week, even if they're doing more of their shopping online, Mr Saunders said.

Some mall operators are taking that to extremes. The American Dream - a 15-year, US$5 billion shopping centre that will be completed next spring in East Rutherford, New Jersey - will feature indoor ski slopes, a water park and aquarium alongside 350 stores, including Hermès, Uniqlo and Zara. By the time it's done, it will surpass the Mall of America in Minnesota as the nation's largest, by square footage.

Both malls are owned by Triple Five Group. Next up for the company: a US$4 billion megamall in Miami.

"Everybody talks about the future of retail and the future of entertainment, and how you merge the two," Don Ghermezian, president of Triple Five Group, said last month. "There really isn't a centre on the planet that has done it to the degree that we've done in here."

But even America's most ambitious shopping centre is not immune to industry turmoil. American Dream lost a key tenant this year when struggling department store chain Lord & Taylor pulled out of a 120,000 sq ft lease. It wasn't long before Barneys New York swooped in as a replacement. But it filed for bankruptcy in August. It sold off assets and it is liquidating its Manhattan flagship, and now its future at the mall is uncertain.

"Nobody is immune," said Mark Cohen, director of retail studies at Columbia Business School. "The shopping mall as we know it is past its prime."

Malls were in trouble, retail experts say, long before the advent of online shopping.

The nation's first shopping centre opened in Edina, Minnestoa, in 1956. Renowned architect Frank Lloyd Wright was unimpressed, as it had "all the evils of the village street and none of its charm". But Americans were mesmerised, and almost immediately developers began looking for new opportunities to build shopping destinations for captive consumers. What followed was hundreds of imitations, with sprawling layouts and the same national chains.

"There was an explosion of one-level malls with four anchor stores, a dreary food court and a carousel in the middle," said Ms Nicholson of Syracuse University. "Developers realised they could put a large, flat building in the middle of a field and quickly make money - so for decades, in the 1960s, 1970s and 1980s, that's what they did." The result, she said, was that "every mall looked the same, and there were way too many of them".

Developers built 750 US malls from 1970 to 2000, according to the International Council of Shopping Centers. By 2008, their numbers had swelled to 1,100 - many of them in rapid decline - as the US was gripped by its worst recession in decades.

"During the Great Recession, it became clear that there was no way all of these stores would survive," said Mr Cohen of Columbia Business School. "Those closures have accelerated over the past decade, and now we're left with hundreds of 'zombie malls' - properties that are still operating but are clomping around more dead than alive."

Across the Potomac River in Virginia, Tysons Corner Center started out much like Lakeforest Mall did, with a handful of anchor stores and a few dozen assorted storefronts.

But over the past 51 years, the property has reinvented itself into a launchpad for big-name brands. Apple opened its first retail store at Tysons Corner Center, as did Microsoft and Spanx. The mall is brightly lit and modern, and its surroundings are constantly being updated, with landscaped sidewalks and a glass-enclosed walkway that connects shoppers to a newly added Metro stop.

As it has grown, the shopping centre has helped spawn a neighbouring community of high-rise office buildings and US$1.2 million condominiums.

On a recent weekday morning, Tysons Corner Center was bustling with hundreds of visitors. Large red signs hawked photos with Santa and holiday cookie-decorating sessions. Freshly packed sushi made its way down a conveyor belt in a first-floor restaurant. There was free WiFi, and a valet service with while-you-shop carwashes, and hundreds of stores, including Nordstrom and Louis Vuitton.

But despite its reinvention, Tysons still isn't fully immune to the problems afflicting malls: One of its anchor tenants, Lord & Taylor, is closing in January next year. WP