The “Downfall” of the Mall: What it Really Means to Consumers and Communities

Numerous sources (many of them reliable) say that the U.S. consumer should expect a decline in the number of shopping malls nationally. According to a report by Credit Suisse, 20% to 25% of America’s malls will likely close in the coming five years. In addition, the rate of new mall investment property development is likely to decline. According to Encyclopedia.com, there are approximately 1,100 malls in the U.S. That’s about 275 malls closing within five years, with fewer being built to replace them.

Keep in mind, it’s likely that we have just a bit too much mall space around and a correction is in order. According to data from Cowen and Company and published in The Atlantic, the U.S. has more than 7.5 million square feet of leasable shopping center space. In addition, shopping center space per person in the U.S. is higher than in other countries, with almost 24 square feet of shopping center space for every person in America. Overall, malls have been a consistently profitable type of investment property and as a result real estate investing and development has accelerated over the past 25 years.

 Downfall of the Mall

So, what does the likely decline in the number of malls mean to U.S. consumers and communities?

  •  Less choice? Not necessarily – One of the big reasons that malls are closing is because folks are using alternatives to the mall store. Also, many communities simply have too many malls. So while there may be a lack of retail choices in some areas, consumers will generally have just as many options as ever.
  •  Store-closing bargains, best of luck with that – It’s true that there may be some deals to be had when the mall in town or the major stores close their doors. Be aware though:
    • Everyone thinks there are bargains out there. So competition for the good stuff may be steep. The best merchandise will go fast.
    • Many retailers will send less marketable merchandise to their closing stores. The lure of low prices can often end in the customer getting no bargain at all.
    • If a retailer goes into liquidation or bankruptcy, an altogether different company comes in to sell off the merchandise. Liquidation companies are very savvy about pricing products in their favor. After all, it’s their only business.
  • Extreme value retail, a potential opportunity – The Credit Suisse report also noted that retailers that offer value products and pricing will increase from a 25% market share to a 35% share of sales. The many malls that do survive will offer more products that provide a balance of quality and value pricing, which will hopefully give consumers a much needed break.
  • Vacant properties, lost taxes, a community challenge – For local communities, one of the biggest challenges with mall closings is the loss of tax revenue and the potential blight and security issues a vacant mall can cause. Local elected officials, business leaders and concerned residents often get involved to ensure that safety is maintained and that new sources of tax revenue are explored.
  • Adaptive reuse, a great opportunity – Imagine the failing mall in your town being converted into an indoor food and entertainment complex; or how about flexible office space for small and mid-sized businesses with services for entrepreneurs that are starting a business; or what if they turned the mall into a community center with shops and a place for youth, seniors, and everyone in between? Some malls can be saved and used for a different purpose. Often though, because of structural issues, it’s preferable to demolish the buildings and redevelop the land as a new investment property. But for newer malls that are not profitable and in good shape, adaptive reuse could be the best option.

We tend to think of things like the mall as static--something that has always been a part of our lives and something that will always be there. But imagine, before the 1950s, the modern mall didn't even exist. Malls in their current form may disappear someday, but they are likely to be replaced with other shopping and entertainment options that we can only imagine today. Rest assured, as long as consumers have money, real estate investing developers and businesses will find ways for us to spend it.

If you enjoyed this article, make sure to check out our other great TheMoneyShelf.com content including information about making and saving money, starting a business, how to get the most out of your money, as well as some of the best books about money and personal finance available.

John Florio, MBA 
TheMoneyShelf.com

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