These Customers Are Giving Shopping Malls a Fighting Chance

For all the upheaval retail has in recent years, the success of a mall in 2019 still comes down to roughly the same thing it did half a century ago: foot traffic.

For a mall to thrive, it needs people to come and shop. But with so many department stores shuttering doors and an increasing share of consumer spending moving online, are Americans still spending their downtime in these air-conditioned icons of suburbia?

The answer is yes. But it’s complicated.

Across all demographics, mall shopping declined 7.6% in 2018 year-over-year, while non-mall shopping rose 0.5%, according to a recent report from Deloitte. This is largely because the retail categories that make up the lion’s share of a traditional mall — department stores and apparel stores — are the same ones that are now seeing the biggest declines, said Bobby Stephens, a partner in Deloitte’s retail and consumer products practice. In fact, department store visits fell 10.3%, and apparel stores slipped 1.7% during the period.

Overall, though, consumers made more trips to brick-and-mortar stores last year, and drove significant growth in categories such as quick service restaurants (up 16%) and hospitality, travel and entertainment (up 8%) — both of which are now being integrated more and more in mall redevelopments.

According to the International Council of Shopping Centers, about half of U.S. adults — approximately 105 million people — went to a mall last year, making an average of 2.1 trips per month. Most of the benefits of this traffic are going to top-tier Class A malls, however, while struggling B and C centers continue to see year-after-year declines. According to a 2017 report by Green Street Advisors, a real estate research firm, nearly three quarters of mall revenues are generated by the top 20% of U.S. malls. Credit Suisse released its own report in 2017 predicting that 20% and 25% of America’s roughly 1,100 malls could close their doors by 2022.

If that forecast sounds alarming, well, it is, but there is hope. And contrary to expectations, younger generations may be the ones driving the mall’s next act.

Young vs. Old

Even for the most plugged-in consumers, shopping centers still serve as a social hub. According to the ICSC, more than 90% of Generation Z consumers said they went to the mall at least once during a three-month period in 2018, compared with 75% of millennials, 58% of Generation X consumers and 53% of baby boomers.

“Every generation definitively still shops at the mall — and that includes millennials and Gen Z,” said ICSC spokesperson Stephanie Cegielski. “In fact, our research found that, in a three-month period, Gen Z shoppers made an average of 8.6 trips to the mall — significantly more frequently than other demographics.”

The kind of malls teenagers are flocking to have ample experiential offerings, said Henry Abramov, research director at the commercial brokerage Lee & Associates. “The super-regional malls are the ones that attract most of them. They offer space to hang out, and you’re not going to get that hangout space in a small local mall or a strip center.” At these larger, more diversified malls, teens can see a movie, go to the Apple store, eat in an upgraded food court or try out a virtual reality or gaming outpost. “Forget about the clothes,” he said.

So if Gen Zers are fans of the mall, why is traffic still declining so dramatically? Blame it on their grandparents.

According to the Deloitte report, the “shift away from malls is happening fastest and most dramatically among the older and higher-income cohorts — groups that have traditionally been the core shopper in malls.” The consulting firm analyzed location data from more than 80 million mobile devices during 2017 and 2018 and found that older consumers — that is, baby boomers, who are currently between 55 and 75 years old — are likely abandoning malls faster than younger generations because they’re now adopting online shopping at higher rates than millennials or Gen Xers, after having been slower to come on board.

Meanwhile, for higher-income shoppers (those with mean household incomes greater than $100,000 per year), the shift away from mall shopping comes down to a matter of choice, said Stephens.

“Their currency has really become time — and whatever they can do to save themselves as much time as possible, they will do,” he said. “So they’re shopping more online, they’re getting more delivery services, they’re going to specialty experiences that are outside the mall. They’re able to curate how they want to consume the products.”

Affluent shoppers may still be visiting malls (and, looking at the success of the country’s top shopping centers that cater to wealthy clientele, most still are), but they’re also taking advantage of the countless other channels through which they can spend their money, many of which offer more convenience.

The Best in Class

Overall, there isn’t any single demographic group that will ensure a mall’s prosperity, according to the foot traffic analytics platform Placer.ai, which studied six top malls from around the country, all of which ranked in the 94th percentile or above nationally for visits. “From average income to household type to age … there is no connective tissue in an audience that can predict success across the national audience,” said Ethan Chernofsky, Placer.ai’s VP of marketing.

“Instead, the defining element of [Class A malls’] success is that they are each focused on providing value to their local environment,” said Chernofsky.

Malls are as much about community as they are about commerce, and many landlords today are investing vast sums of money to revamp their properties to meet changing consumer preferences, filling vacant spaces left by once-ubiquitous anchor stores like Sears and JCPenney with service-oriented tenants such as co-working spaces, buzzy restaurants, online gaming arenas and fitness centers.

Some are transforming into mixed-use developments, adding residential towers, offices and community-oriented green spaces, fulfilling the original concept laid out in the 1950s by Victor Gruen, the architect and city planner behind the country’s first mall (and dozens more thereafter). Gruen envisioned the mall not just as a convenient place for suburban consumers to park their cars and get their shopping done, but as a modern version of the proverbial town square.

One such revitalization was completed earlier this year in Arlington, Va., where the hulking, fully enclosed Ballston Common mall was transformed into Ballston Quarter, a mixed-use, open-air development that’s since “become the social heart of the neighborhood,” according Marc Fairbrother, VP at the global architecture and design firm CallisonRTKL, one of the firms behind the $350 million project.

Ballston Quarter
Ballston Quarter in Arlington, Va.

The property’s tenants now skew heavily toward food and beverage, whereas before, soft goods such as apparel and footwear made up 70% of the mix. While the complex sees every demographic, said Fairbrother, the addition of a 25,000-square-foot food hall with local eateries has proven to be a popular draw for the area’s young professionals. (According to Arlington Economic Development, 63% of the neighborhood’s residents are between the ages of 20 and 39.)

The sad state of Ballston Common prior to the redevelopment can be traced back to the same problems afflicting most of the struggling malls across the country. “Back in the day,” said Fairbrother, “you had a Sears on one side, you had a JCPenney or a Macy’s on the other,” and a food court with all the same restaurants in it somewhere in the middle.  “That’s why these malls all started to go away, because people went to those environments and it was like, ‘It’s just like the one we went to half a mile from here.’ There was no specificity to it.”

He added that cookie-cutter experiences won’t lure in today’s customers, particularly if there’s nothing on offer that can’t be found online.

Overall, though, the future outlook for malls is not as dire as many have feared.

Nearly 90% of retail sales still take place in physical stores, according to the Commerce Department, and industry experts largely agree that the best malls will continue to flourish — even if they look less and less like the archetypal shopping emporiums of decades past.

The most successful mall owners, Placer.ai’s Chernofsky argued, will be those that leverage data to understand and best serve their communities with unique offerings.

One silver lining to the closure of so many old-school big-box retailers is the opportunity for a greater variety of small- and medium-size retailers, direct-to-consumer brands and service-oriented businesses to take their place, he said. “It’s enormous change that’s going to mean that a local mall can be hugely successful even if there’s a mall right nearby that’s also hugely successful, because they cater effectively to a specific segment of that community.”

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