Closing Up Shop

Shopping was once an activity mainly done outside the home. There was no online, no e-commerce, no apps.  

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Closing Up Shop: Is online shopping to blame for major retailers and malls closing, or could it be something more?

Jul 2, 2018

Closing Up Shop

Shopping was once an activity mainly done outside the home. There was no online, no e-commerce, no apps. There were, at one time, retailers who came to the home such as the milkman or door-to-door salesmen, but in the past few decades, before the internet, if you wanted a wide selection of items or searching for something special, you went to the mall.

But these days many popular chains such as Sears, Toys ”R” Us, Kmart and Macy’s, once anchor stores for popular malls across the country, or unique specialty stores such as Teavana, are now shutting stores or closing altogether. Is online shopping the culprit for killing off businesses?

No, not exactly. While there are differing opinions, the general consensus seems to be there’s more to the issue than just the rise of online shopping, although e-commerce certainly has played a key role.

According to a report released earlier this year by the U.S. Commerce Department, consumers spent $453.46 billion on the web for retail purchases in 2017, up 16 percent from $390.99 billion a year earlier. According to the report, “…e-commerce represented 13.0% of total retail sales in 2017, a marked increase from 11.6% in 2016 ... [and] roughly 49.4% of all retail sales growth that year” — a significant piece of the retail shopping pie.1

But according to Armin Begic, director of the retail business group at market research firm The NPD Group, “There’s a lot more going on than just e-commerce,” including the rise of the sharing economy (which has reduced the need to buy new merchandise) and the differing tastes of millennials, who “don’t gravitate to car ownership as much as their parents did, making them less likely to drive to a mall and more likely to shop online or stick to local stores,” stated Begic.

So what is driving the closing of brick and mortar shops and retail malls if it isn’t all attributed to online shopping? Ingenuity and diversification.

Retailers like Walmart and Target no longer just offer clothing and cookware; these stores have become one-stop-shops, offering virtually everything, including groceries, clothing, electronics, pet care products, wedding and baby registry items, home appliances, automotive repairs, a pharmacy and even a fast food court. With all that available in one store, why head to the mall?

According to a Ngenuity Payments Journal article, “Where Have All the Malls Gone,” it’s actually these diverse offerings from stores like Walmart and Target that are taking a large bite out of revenue from shopping malls and specialty stores, not the online retailers. According to the article, “Walmart remains the king of retail: Its revenues of $486 billion in 2016 were nearly four times those of Amazon's retail divisions ($124 billion).”  Kurt Jetta, founder and chief executive of TABS Analytics, a retail and consumer analytics firm based in Shelton, CT, is quoted in the article stating, “There's just so little appreciation for demand shifts. It's easy to say 'It's all e-commerce.' Then when you dig into the data, you almost never find it. You find that there is something much bigger." 2

And the expanded offerings is not a point lost on new mall developers. According to a recent article in the Wall Street Journal, there’s increased competition on the retail front from more modern malls with a more attractive mix of stores and eateries.3

The malls of the past were successful, in part, because they served as destinations. More than just places to shop, they were a place to go when you wanted to "get out of the house" or hang out. Hence, the malls today that have a leading-edge mix of stores and restaurants and cater to the various populations in their market area are doing well, and those that feature anchor tenants that have fallen out of favor with the shopping public have closed or are at risk.

The country’s largest shopping mall operator, Simon Property Group Inc., appears to be doing well and has learned that flexibility is key. According to a report from Morning Consult, [Simon Property Group] “reported $571.1 million in profit for the fourth quarter of last year, compared to $394.4 million in the same period of 2016,” with occupancy at 95.6%.4 

Researchers believe that it was almost inevitable that a wave of malls would fall by the wayside, in light of the fact that the number of malls quadrupled between 1970 and 2017 (from 300 to 1,202), even as the U.S. population grew by a comparatively tepid 63 percent during that time period. But new malls are still opening — and more still are reinventing themselves, and successful ones cater to the online customer and the retail shopper in the same environment.

“Many malls are renovating in four key ways,” commented Taylor Coyne, a senior research analyst at Jones Lang LaSalle Inc., in the Morning Consult report. “[By] improving or adding food, beverage and entertainment options; creating more community-oriented spaces and adding mixed-use areas; investing in aesthetic upgrades or name changes; and converting to non-retail uses.”

This “reinventing” includes computer stores offering all day “play areas” for families and gamers to try out new equipment; online kiosks for shoppers who want to order online for shipping directly to home; and even charging cafes for shoppers to relax and recharge phones and tablets.

According to an article in the Harvard Business Review by David S. Evans and Richard Schmalensee, authors of The Matchmakers: The New Economics of Multisided Platforms, “The best retailers combine bricks and clicks. It is becoming increasingly clear that retail reinvention isn’t simply a battle to the death between bricks and clicks. It is about devising retail models that work for people who are making increasing use of a growing array of internet-connected tools to change how they search, shop and buy. Creative retailers are using the new technologies to innovate just about everything stores do from managing inventory to marketing to getting paid.” 5

Many malls are even choosing to remove the word “mall” from their name in favor of more romantic or encompassing names such as Square, Center, Commons, Towne or Shoppes. That's hardly a surprise, though; the word mall may conjure up an image of a dated shopping center — or worse, a cultural wasteland of suburbia.

It’s clear, though, that few commentators seem willing to predict that shopping malls are on the precipice of disappearing from our lives by the number of internet users (421,000) who subscribe to Dan Bell’s Dead Malls YouTube series — a collection of video tours featuring dying, decaying and abandoned shopping malls that dot the retail landscape.

“I always laugh because every year there’s an article on the [impending] death of the shopping mall,” says M. Jeffrey Hardwick, author of Mall Maker (University of Pennsylvania Press) — the definitive biography of Victor Gruen, who is widely viewed as the “inventor” of the shopping mall. “It always says there are too many malls and Americans can’t support them all. But they have become a flexible form. Retailers are pretty creative, and they endlessly reinvent retail in ways that closely resemble the mall’s original ideas.”6

So online isn’t killing the shopping malls: like technology, the malls and retailers are evolving to meet the growing needs of its customers.

 

 

1. U.S. E-Commerce Sales Grow 16% in 2017, Digital Commerce 360, https://www.digitalcommerce360.com/article/us-ecommerce-sales/

2. Ngenuity Payments Journal, Where Have All the Malls Gone?
https://www.tsys.com/news-innovation/whats-new/Articles-and-Blogs/nGenuity-Journal/where-have-all-the-malls-gone.html

3. The Internet Isn't Killing Shopping Malls--Other Malls Are, Wall Street Journal, https://www.wsj.com/articles/the-internet-isnt-killing-shopping-mallsother-malls-are-1492513200

4, 5. To Survive a Challenging Future, Shopping Malls Look to the Past, Morning Consult, https://morningconsult.com/2018/02/22/survive-challenging-future-shopping-malls-look-to-past/

6. The Shopping Mall: Suburban Mecca, Consumer Paradise, and Sociocultural Disaster, Failure magazine, http://failuremag.com/article/the-shopping-mall