Mall Closures Hit Small-Town America Hard

The rise in online shopping continues to have dire impacts on the traditional shopping model. As a result, announcements of mall closures and brick-and-mortar outputs shutting down have become all too common.

But in smaller U.S. cities, where malls and shopping centers often serve as cornerstones of local economies, these closures are a tough pill to swallow, The Wall Street Journal reported.

When malls close in these areas, the ripple effects typically include loss of jobs and tax revenues to logistics and transportation companies as well as the risk of default for creditors who invest in mortgage securities tied to struggling malls.

“In weaker malls, sometimes you see an anchor blow out and then another anchor blow out,” Steve Kuritz, managing director at Kroll Bond Rating Agency, told the WSJ. “It’s a binary situation where strong malls continue to do well, and then there are malls that are duds.”

Shares of mall companies fell earlier this month in sympathy with the announcement by Sears Holding Corp. that it would close as many as 150 stores over the next few months.

Bloomberg reported that its index tracking regional mall firms slipped 2.8 percent during the first week of January, the biggest drop in two months. Breaking down that tally, CBL & Associate shares slid 4 percent, with the biggest mall owner in the country, Simon Property, off a bit more than 3 percent.

The newswire said that the Sears closings show the challenges of luring shoppers into stores, with other department stores acknowledging those issues.

Macy’s also announced cut 6,200 jobs, and Kohl’s cut its earnings forecast, citing worse-than-expected holiday sales. Of the 68 Macy’s stores expected to close, 16 are in malls that are owned by real estate investment trusts (REITs), Bloomberg said, citing analyst reports. Morgan Stanley’s analysis shows that there is what Bloomberg termed “significant overlap” between the Sears and Macy’s portfolios, as 45 percent of REIT-owned malls count both department store chains as tenants.

As for the stock slump, Alexander Goldfarb, a Sandler O’Neill & Partners analyst, said the stock reaction was “knee-jerk,” adding that, “I don’t think anybody is surprised that some department store chains are having challenges. Some retailers are having challenges, and others are doing well.”