As Online Sales Soar, the Demise of US Shopping Malls Becomes Inevitable

By Adriaan Brits Monday, July 6, 2020

In the first quarter of 2020, online spending represented 16.2% of total retail sales according to the data released by the US Department of Commerce. 

However, the 14.5% increase for the first quarter, compared to the same period of 2019, captures only the first two weeks of the national emergency declared by President Trump in March. Second-quarter figures, expected by early August, are bound to capture more precise figures of the shift in consumer spending habits during the months spent homebound. 

With over 1,000 malls still operating in the US today, these privately and publicly held real estate properties are heading into turbulent times. They have unfortunately been doing so for some years now. Taxes from these malls are invaluable to towns and cities as they help to fund infrastructure and public services.

Store Closures and the Demise of the Shopping Mall

Even though 2019 was a year of healthy consumer spending in the US, retailers closed 9,302 stores. That was a 59% increase from 2018. Some of the biggest burdens for store owners are increased ecommerce sales, high debt levels, and keeping up with their rentals. 

In 2020, Coresight Research predicts that retailers will announce another 15,000 store closures — almost double the 2019 figures. Of these closures, 55% to 60% are situated in shopping malls. 

Unfortunately, most new and existing retailers are not scrambling to fill these vacant spaces in the shopping malls. The pandemic has accelerated the demise of the shopping center, and the blow will be especially felt in towns that depend on them for an income.

Shopping Malls Make Major Tax Contributions

According to the National Council of Shopping Centers, malls and shopping centers boost local sales tax and real-estate revenues by $400 billion annually across the US. These malls also provide employment opportunities for thousands of workers. 

Department stores and luxury goods stores have been the major income for these malls over the years. Alongside these opportunities were opened for small business owners to capture shoppers from the daily visits to these centers. With the bankruptcy of J.C. Penney alone, more than 150 stores will be closing in shopping centers around the country, and this is only the tip of the iceberg. 

Many companies, like Gap and American Eagle, prefer to remain non-anchor tenants. They sign co-tenancy leases, allowing them to vacate spaces sooner. The problem for mall owners is how to replace anchor tenants. 

Over the years, consumers who were previously looking to move to suburban areas have started seeking downtown accommodation. This has led to malls experiencing a downturn in the number of feet per day. These trends are exacerbated by the ever-increasing shift of consumers to online shopping.

Reinventing Mall Spaces

As shoppers are doing more shopping online, malls need to think of ways to keep bringing them back. One solution adopted by the most successful malls has been creating spaces suitable for spas, hair and nail salons, specialty gyms, and restaurants. Together with these, they rely on brands that appeal to people that are up-and-coming or higher income earners. These include Apple, Nordstrom, and other upscale shops. 

However, it takes millions to reinvent these spaces, especially so that they can also encourage tenants like medical clinics and microbreweries to move in. However, as these spaces are redeveloped to accommodate even call centers, and vehicle showrooms, the impact may never be reversed.

What This Means for Business

Even as spending on nonessential categories continues declining in stores and online, consumers are spending money on groceries and household staples on the web for now. 

Online shopping figures show that during the first week in April, online shoppers’ numbers already showed an increase because of the coronavirus pandemic. According to one survey, 26% more in the first week of April than the previous three weeks. 

The question is how much the ecommerce market will affect in-store shopping once the economy starts to open again. Many believe not all the gains will be retained. Only time will show how bricks and mortar retail businesses and the malls will manage to recoup their losses as they find ways to reinvent themselves.

About the Author

Headshot for author Adriaan Brits
As an analyst of global affairs, Adriaan has an MSC from Oxford, with diverse interests in the digital economy, entertainment, and business. He is a specialist trainer in Advanced Analytics & Media.

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