The Culling of US Malls — the Strong Will Survive as Others Crumble

By James White Thursday, January 28, 2021

In 1956, the first enclosed US mall was constructed by architect Victor Gruen. The structure featured storefronts directed only to the interior of the complex. With a courtyard hub at its center, the building was flanked on either side by department store anchor-tenants. The mall’s construction led to the flagship design of most modern malls.

The Southdale Center still stands in Edina, Minnesota, though the business has transformed from the original shopping center it once was. In today’s climate, where online shopping dominates and ecommerce giants like Amazon rule, change is not only a product of time. It’s necessary for survival.

A clothing store inside a shopping mall.

Physical Retailers Fighting for Their Businesses

Last year was an exceptionally difficult time for mall management companies. Many malls and businesses already struggling to keep up with Amazon, which is projected to own almost 40% of US retail ecommerce sales in 2021, were blindsided with closures due to the COVID-19 pandemic.

Simon Property Group, one of the largest mall management companies in the US, saw its stock price drop by nearly 32% since this time last year and reported a 14.6% decline in portfolio net operating income (NOI) for nine months ended September 30, 2020. Furthermore, Brookfield Property Partners saw a $248 million loss in net income attributable to unit holders in its retail core business for three months ended September 30, 2020.

Foundational Retail Companies Struggling

Bloomberg reported that 25,000 stores and businesses could permanently shut down in 2020 due to the virus. A major contributor to the fall of many malls is the loss of anchor-tenant companies and businesses like Sears, JCPenney, and Macy’s.

JCPenney reported another net loss of $1.3 billion from nine months ended October 31, 2020, after posting a loss of $295 million in 2019. The company filed for Chapter 11 bankruptcy in May but is now exiting the plan after successfully selling its assets to Simon Property and Brookfield Property, who own the majority of the business’s stores in their malls. As part of the agreement, Simon and Brookfield will assume $500 million in the chain’s debt.

Macy’s, who recently announced the closure of 36 store locations, reported a net loss of $91 million in Q3 2020. This is down significantly from the net income of $2 million that the company reported in Q3 2019. Despite this change, the business also reported a 27% increase in digital sales in Q3 2019.

Adaptive and Luxurious Malls Will Endure

Though the industry is declining, not all malls are failing. The Galleria in Houston is a prime example. By offering high-end retailers like Gucci and Prada as well as more entertainment-oriented services like restaurants and an ice-skating rink, the company ensures that its customers cannot simply replace the experience through online shopping. Subsequently, upscale malls typically receive the most funding from their owners, leaving other struggling malls with less staying power. States heavily relying on sales tax as a source of revenue, like Washington and Tennessee, will feel the greatest loss of these businesses.

About the Author

Headshot for author James White

James White is a Michigan State University graduate with a B.S. in Environmental Biology. He is interested in reporting emerging trends in technology, especially with regard to alternative energy and environmental conservation.

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