Despite a rough couple of years, the mall as we know it is far from obsolete.
While mall traffic had been on the decline even before the pandemic, recent data suggests the potential for a possible comeback.
According to a recent report from real estate brokerage firm CBRE, open-air shopping centers will be the most in-demand property type in 2022, along with single-tenant drive-thru sites. The indoor mall is also seeing gains — foot traffic analytics firm Placer.ai showed that Black Friday visits to these sites increased 82.7% compared to 2020. Traffic was down compared to 2019, which Placer.ai said is partly because of the longer and spread out holiday shopping season this year.
Despite the slight uptick in recent holiday traffic, the future of the mall is changing. And it represents a shift in consumer behavior and needs.
“There’s been what I will call an evolution of malls,” Berkeley Research Group managing director Keith Jelinek told FN in an interview. “The overall experience has been that we have less people going to department stores.”
Department stores like Macy’s JCPenney, and Kohl’s have traditionally served as foot traffic anchors in major shopping centers, driving a consumers with broad selections of merchandise. In recent years, an emphasis on online shopping as well as a brand-driven push to DTC channels have made large department stores less desirable as shopping locations.
In 2012, BRG estimates that there were 72 different department store entities. In 2021, that number dwindled to 45 due to a bankruptcies or acquisitions. This winding down has also impacted store locations. In 2012, there were around 8,300 department store locations in the U.S. In 2020, this number was down to 6,300. And locations are projected to decline even more through 2025.
For example, Macy’s said it plans to close 10 physical stores in January as part of its plan to close a total of 125 stores in lower-tier malls by 2023.
At the same time, retailers and shareholders are picking up on a powerful e-commerce opportunity for their department stores. Saks’ parent company Hudson’s Bay Co. split the retailer’s website and stores into two separate businesses in March to lean into its superior digital capabilities. Macy’s Nordstrom, and Neiman Marcus are all reportedly considering similar options.
“At the end of the day, that just comes down to shareholder value,” Jelinek said of this recent trend. “So they need to be able to improve their return on investment to the shareholders, and that’s the primary reason they’re looking at it.”
In outlining how malls will change in the future, the retail industry veteran explained that the successful malls will be the ones that integrate experiences and entertainment into the shopping landscape.
“The mall is going to change to become not only a place where you go to shop, but it has to become more of a place of discovery, creation, and community gathering,” Jelinek said, adding that these locations will also feature multiple brand-owned stores, like a Nike or Adidas, as well as capabilities to fulfill online orders.
This change means that department stores will likely no longer mostly exist as an anchor for foot traffic in these centers. Rather, they will also take on a new role as a center for discovery. He even predicted an experience in which brands that display their products in department stores could directly ship their products to consumers. This system would eliminate excess costs, give brands more control over their connection to consumers, and allow department stores to make relationships and connections with exploring shoppers.
So while there might be fewer of them in 2022, department stores will persist. They just might not be key traffic drivers in a mall.
“The department store is still going to be a place where a customer wants to have a broad selection of product,” Jelinek said. “They want to be able to go somewhere where they can touch and they can feel it and they can try something on.”