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Five trends in five years will reshape U.S. mall mix

Expect the malls of 2023 to include new uses and experiences, as retail real estate responds to five major industry and demographic trends over the next five years.

That’s according to a new report from global think tank Coresight Research, which predicted that mall operators will move away from an apparel focus to create retail-and-services ecosystems that include a variety of uses.

“Over the coming years, many malls will reshape their offerings, moving from a focus on apparel stores clustered around department store anchors to more diverse networks of nonapparel retailers, leisure and entertainment tenants, event and pop-up spaces, and business service providers," stated Coresight Research CEO and founder Deborah Weinswig in the report, "Deep Dive: The Mall is Not Dead, Part 3-Five Predictions for Five Years Out." "Those property firms that are proactively dealing with market shifts by broadening their range of tenants now—rather than simply reacting to apparel store closure programs and bankruptcies as they arise—look set to be the most resilient as the apparel market shifts further."

According to the study, the five trends that will prompt these changes are:

1. Department store consolidation: Coresight Research predicts that 1,100 to 1,200 department stores will close between 2017 and 2023, reducing the total number of stores in the sector by one-fifth. However, with the exception of bankruptcies by chains such as Bon-Ton, these closures will have a bigger effect on lower-traffic, lower-sales regional malls than on higher-traffic premium malls.

2. Shift to services: Between 2000 and 2017, consumer spending on goods as a share of total discretionary spending fell from 50% to just over 45% As a result, U.S. consumers spent $139 billion less on discretionary goods in 2017 than they would have if the goods/services split had remained at 2000 levels.

"Looking ahead to 2023, we expect consumers will be redirecting an additional $78 billion to discretionary services at the expense of discretionary goods," Weinswig stated.

3. Apparel sales diverted online: Brick-and-mortar apparel sales will remain flat, as e-commerce captures a greater percentage of a growing total market. Shoppers will spend approximately $73 billion more online on apparel in 2023, with e-commerce capturing one-third of total apparel sales (up from 20% today).

4. The maturation of millennials: The oldest millennials will be 43 in 2023, and will wield more than $5 trillion across all spending categories in that year. The next age group, Gen Z (those born after 2000), will also be fully fledged consumers in five years' time. Together, the two groups will constitute more than half of all U.S. consumers, and will continue to prioritize value for price paid and experiences over goods.

In addition, their familiarity with digital brands is likely to support the continuation of the clicks-to-bricks trend in retail.

5. Growth of nontraditional channels: Retail alternatives such as rental, resale and subscription services could capture $17 billion in spending at the expense of traditional retail channels in 2023.

"Brick-and-mortar retail will face significant challenges in the coming five years," Weinswig writes. "The mall is not dead but challenges await the most unexceptional, apparel-dominated regional malls."

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