Why Malls Are Thriving in an Era of E-commerce

[Retail Fan+ (Justin Hill)]

Why Malls Are Thriving in an Era of E-commerce
Travis Hoium, The Motley Fool
July 16, 2019

The mall was supposed to be on a long, slow decline in the U.S. and around the world as online shopping took over. Amazon (NASDAQ: AMZN) continues to grow year after year, and every store under the sun has an online presence, but malls somehow seem busier than ever.

Local trends don't necessarily tell the story of a large industry, but we can gain insights from our personal observations. I live not far from the biggest mall in the U.S. -- the Mall of America -- and if the death of malls were apparent we would see it there. But that couldn't be further from the reality on the ground. Construction cranes never seem to leave the mall area as a shopping expansion turns into a hotel, which turns into another retail expansion. And renovations inside show just how vibrant some of the mall industry is in 2019.

The numbers don't show the death of malls

A recent report from Reis showed that regional mall vacancies were 9.3%, unchanged from a year ago and well down from their peak of 11.1% in Q3 2011. Not only are vacancies not at record highs, effective rents were up 0.4% in the last quarter to $18.73 per square foot.

Vacancies and rents aren't improving quickly, but they're steady and that's notable at a time when former stalwarts like Sears (NASDAQOTH: SHLDQ), JC Penney (NYSE: JCP), and Macy's (NYSE: M) are shutting down millions of square feet in malls across the country. While anchor locations are struggling, vibrant innovations are taking place inside malls.

Malls are becoming showrooms

Small retail spots within malls have become a great place for brands to build a presence and reach customers directly. Apple (NASDAQ: AAPL) may be the most notable example of this, bringing its brand, products, and services to consumers within malls around the world.

Today, walking around a mall is like looking through a branding magazine. Nike, Microsoft, Oakley, Verizon, and even Mercedes-Benz have mall locations, and that wasn't the case a couple of decades ago. They're trying to reach customers directly at these locations, building a brand that will translate to in-person and online sales. Unlike with traditional retailers, the profitability of the store doesn't matter; what matters is building a local presence that enables the company to control the image it presents to the world. 

Another notable trend lately is online brands moving into physical locations. Warby Parker, All Birds, and Peloton are three of the online names building a physical presence lately. A retail shop is more about brand awareness and marketing than profit, but as with bigger brands, the physical location is little more than a showroom, not what will ultimately drives profitability.

The mall experience will continue to change

The death of retail and malls in general has been predicted for more than a decade, but in reality, malls are a great place to reach customers. A mall is a central location where thousands of customers can be exposed to a brand and experience products in person. That's valuable to lots of retailers, and the fact that we're seeing online retailers become tenants at malls shows that the internet isn't going to kill the mall after all.

[AmesNewington]

Westfarms in Connecticut is an example of a success story. What keeps the mall going so strong is their location, between Farmington and West Hartford, an affluent area. They attract high end stores, some that have their only Connecticut location at the mall. You will see several shops you can't find elsewhere in the area, with the exception of the outlets along the shoreline. This includes one of their anchors, Nordstrom. Even now, they continue to get in new stores and invest in existing stores. They still have JCPenney, for those who can't afford the high end stores. The mall furthermore helps the surrounding shopping centers along the strip, with the former Sears property flourishing with even more exclusive options, while the original Corbins Corner connected to it still thrives with The Edge Fitness Center coming soon. The plaza next to Westfarms recently gained LA Fitness and Burlington. While both the mall and area plazas lose retailers and have empty space, they are in a position to easily regain new businesses. The largest vacancy in the strip along the route is Toys 'r' Us and Babies 'r' Us, and the former is becoming Edge Fitness. I'd say that's pretty good.

Elsewhere in the state, there are several malls that have potential, but are suffering a bit with the loss of anchors like JCPenney and Sears. One example is Meriden. Since Sears closed in January, the mall has lost a bit of its charm and vibrancy. Several other stores left following Sears closure, some due to the chain itself liquidating or because they weren't getting the traffic they wanted. There are still several stores in the complex that keep it going, like TJ Maxx, Dicks, Best Buy, Macy's and Boscov's. It's not a very affluent area, so no high end stores would survive here, but its one of the only shopping options in the area besides Route 5 down the road.

Buckland Hills is another mall that still holds its own in Manchester. That entire area is considered the shopping hub of Connecticut, with many exclusive retailers and stores that are few and far between in the state, like Christmas Tree Shop, World Market, and Sears, one of two remaining locations in the state that still does decent business. While several stores leave the mall, others are opening, including some different concepts like a kids play center, tattoo parlor, smoothie shop, and a collectibles/sports memorabilia store to name a few.

I believe some malls can survive and continue to be a part of the shopping experience. Some may fail and go away, but if they must, it can open the possibilities for new opportunities to replace them. But we will still have the surviving malls as an option.   

[danfifepsu]

I Went to 2 Malls in CANADA and they seem to be thriving, Why are they more thriving? Maybe some of the US ones have stale tenants, built too many malls? I blame the mall thing on them being more and more clothing stores.