Long live physical retail.
That’s the thought one gets when reading news via Bloomberg, which reported “when shoppers visit the long-awaited American Dream mega-mall in New Jersey this spring, they can expect to see it crammed with stores, restaurants and entertainment activities.”
As the story goes on to explain, “Developers have leased almost 90 percent of its available 3.3 million square feet, a figure which rises to nearly 100 percent when leases under negotiation are included, according to a filing. In particular, all retail anchor stores have been spoken for — which is critical for malls because those locations, typically department stores, are key in driving foot traffic.”
Granted, retail does not get all the credit for this.
“American Dream has said it can beat the odds because of its attractions — counting a Nickelodeon Universe park, an ice skating rink and a ski slope among them — and its accessibility to New York City,” Bloomberg reported. “It seems to have paid off, with all of the stores bigger than 20,000 square feet now leased, and about 70 percent of smaller ones, the filing showed.”
Indeed, the retail location, whether via its entertainment attractions or not, seems to be bucking larger commerce trends.
U.S. shopping malls have reached the pinnacle of struggle, with empty shops hitting a 20-year high, the Financial Times (FT) reported on Tuesday (Jan. 7). By the end of 2019, there were more vacant stores than at any time during the past two recessions, according to Reis Moody’s Analytics.
People are shopping and spending is strong, but eCommerce is getting most of the sales rather than physical stores. Malls are anticipating that more shops will shutter in the coming months. Texas-based Pier 1 Imports is the latest casualty, with 450 stores going out of business. Gap and Victoria’s Secret also announced closure plans. Although earlier reports of a retail apocalypse were overstated at first, the latest statistics seem to indicate “that the scales may have tipped,” said Barbara Denham, senior economist at Reis.
Reis pegged the mall vacancy rate at an all-time high of 9.7 percent, the most since record keeping started in 2000 when just 5.3 percent of shops were empty, according to FT. Vacancies increased to 6.8 percent with the 2001 recession and hit 9.4 percent in 2011 following the 2008 financial crisis.
The average rent of $43.53 per square foot is a record high, Reis data showed. The data also indicated that geography plays a role in store closings, with fourth-quarter vacancy rates of 4.2 percent in San Francisco and 16.3 percent in Indianapolis.
Data from Coresight shows that 9,300 stores shuttered in 2019, the most since 2012, the first year the information was tracked, FT said. Overall retail sales from Nov. 1 to Dec. 24 were up 3.4 percent from the same period in 2018, Mastercard data indicated, but sales at brick-and-mortar stores went up only 1.2 percent.
As traditional mall merchants go under, however, some online brands are expanding into brick-and-mortar locations. More than 1,700 physical stores in the U.S. were digital merchants first, according to Fifth Wall and Thinknum Alternative Data.
In April, a UBS report showed that online shopping by the average U.S. household went up almost 50 percent from five years earlier. The report also noted that online shopping is expected to make up 25 percent of retail sales, with around 16 percent of overall sales made online.
Malls are not exactly the hotspots of coolness and retail activity they once were. But operators of some of those shopping destinations continue to wield investment power as malls undergo remakes for the 21st century. Among the latest examples of that trend comes from Simon Property Group, the largest mall operator in the United States, which, according to Reuters, “will invest $5 million in Allied Esports.”
Allied Esports describes itself as “a premier eSports entertainment company with a global network of dedicated eSports properties and content production facilities.”
It’s too early to write off these large retail locations — but it’s also too soon to say whether these reinventions will really work.