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One of the most analyzed categories of retail is the future of shopping malls. Journalists have assigned sensational headlines such as the retail apocalypse which has generally been prescribed to the much-maligned shopping mall and its department store anchors. No doubt there have been many challenges in 2021/22 especially with the pandemic accelerating store closures and bankruptcies which have increased the vacancy rate in malls along with lower foot traffic due to reduced capacity to respect the global pandemic health guidelines. Is the shopping mall a white elephant or a phoenix that will rise from the ashes? To answer this question, one needs to look at the history of the mall and the changing market forces that are requiring it to reinvent itself.

Back in the 1980’s, during the golden era of the mall in the US market, shopping complexes continued to build at a rate of over 1,000 per year. There was no e-commerce and shopping in malls was the entertainment, especially in the suburbs of consumerism where the “shop till you drop” boom began.  In 1992 the mall would reach its peak with its final evolution: the mega-mall. Think of West Edmonton in Minnesota with a whopping 5.3 million square feet with over 800 stores, a theme park with 24 rides, a waterpark, an ice palace and a hotel all from which Mall of America was inspired!

Even before current times, there were indicators of trouble in malls with lower foot traffic and anchors that were beginning to crumble. The rising tide of Ecommerce and the golden age of Amazon and other direct to consumer businesses were beginning to erode shopping mall traffic.

There needed to be a course correction in terms of the number of stores required, considering the omni-channel revolution coupled with the bifurcation of the market split between the lower end of discount stores and the upper end of the luxury market. The dwindling middle market of retailers like JC Penney and similar were the ones that were struggling. In Canada, there was a consolidation of department stores which took place earlier than the US market with the disappearance of Simpsons, Eaton’s and finally Sears. It created the opportunity for US retailers like Nordstrom and Saks to enter the Canadian Market. The Bay has spent the last several years upgrading their flagship stores and bringing new management to craft a fresh strategy to ignite growth. The verdict is still out. Other consumer forces with younger buyers preferring specialty stores over department stores have impacted mall anchors that have failed to win over the desirable demos of Gen Z and Millennials.

Although some regional malls may disappear there is reason to be confident that shopping malls will continue to remain a shopping staple. Flagship malls like Yorkdale and Carrefour Laval are not disappearing and will continue to attract the strongest retail brands that will allow it to survive. Open air malls both in the US and Canada are continuing to gain traction. For example, Miami’s Upper Buena Vista Shopping Center reopened to foot traffic that surpassed normal pre-global pandemic levels. Quartier Dix30 on the south shore of Montreal with its combination of retail, food and entertainment continues to attract new brands and customers alike. Shopping Malls that are attracting new and exciting direct to consumer brands like Hudson Yards will reinvent the mix of tenants from retail only brands to a mix of DTC and mixed-use services to round out the loss of Anchor department store.

Malls that have lagged in digital transformation will experiment to create their own digital marketplace platforms of discovery for their tenants to offer convenience for their customers and merge the worlds of online and off-line shopping. Increasingly, stores are becoming hybrids and playing a more active role in supporting online orders. Most stores now act as service centers for online purchase in some way – a place to pick up or return an e-commerce order or fulfill orders from store stock.

Shopping malls will adapt to the changing roles of stores and reallocate space to accommodate new forms of pick-up from curbside to BOPIS.  Pop-ups will become an opportunity for new and upcoming retailers to experiment with brick and mortar in malls that previously they could not afford to enter.  The global pandemic may have accelerated the shift in shopping malls but change in itself is inevitable and will force innovation and reinvention. A final note of optimism is that when surveyed Gen Z, despite being the generation that is most digital, prefers shopping in stores and thus will drive the future of physical retail.

Oberfeld Snowcap is Canada’s leading independent firm of retail real estate consulting services. With over 40 years of experience in the industry, our team of advisors merge their insights with market intelligence to offer retailers a range of services from tenant representation to restructuring leases with the goal of adding lasting business value.

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