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06/11/2020

Will one-third of American malls be closed by the end of 2021?

Al Urbanski
Real Estate Editor & Manager
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The retail industry is certainly expecting its COVID-19 casualty list to be high, but is it possible that one-third of all malls will cease to exist at the end of 2021? 

That’s the call that retail consultant and former May Company executive Jan Kniffen made on CNBC this week. With Neiman Marcus, Saks, Lord & Taylor and countless other mall anchors struggling, Kniffen said that leaves only Macy’s with a financially backed future, and that scores of anchorless malls will fall as a result.

He makes a good point, so Chain Store Age took a quick industry-expert poll to see if anyone agreed with him. Some did.

“The forecast that a third of all malls will be dark by the end of 2021 might be a bit aggressive, however, this depends on whether consumers are willing to go to the mall,” said Jeff Green, a partner in the Hoffman Strategy Group. “If a vaccine is available late this year, then some of the B, B-minus, and C-plus malls survive a little longer.  But if today’s conditions continue, then I believe the forecast is realistic.”

Noting that online sales were growing four to six times faster than brick and mortar sales before the pandemic hit, Simeon Hyman, global investment strategist at ProShares, thought Kniffen’s call could be on the mark.

“This relentless transition, still in its early innings, has been delivering a steady stream of store closings and bankruptcies,” Hyman said. “A modest uptick in online’s already impressive growth can only exacerbate brick and mortar’s pain.  It would be tough to imagine a more bearish backdrop.

CBRE’s managing director of retail asset services Mark Hunter agreed that many malls might be vacating their current spaces, but retail would return to those spots in a different style and under a different name. 

“The current environment will likely accelerate the closure of certain malls, particularly B and C class malls that were already in decline due to continued department store closures,” Hunter said. “However, many of these malls are well-located, and the underlying real estate value will provide opportunities to transform them into mixed-use developments that will likely continue to have some retail component.”

Coresight Research CEO Deborah Weinswig thinks it’s realistic that 25% of malls will be gone within the next five years, but that many of them will survive as live-work-play centers. 

“More and more employers are looking into what an office in a mall might look like. We are seeing apartments and more being added to many mixed-use centers and we will see an increase in number of grocers and drugstores in malls, as well as services like beauty, healthcare, dry cleaning, and shoe repair,” she said.

Kearney consulting partner Michael Brown held that mall owners’ failure to react to the rapidly changing situation at retail will lead to the extinction of their sector.

“The future will be won by businesses that offer more meaningful experiences in less square footage with a minimal forward deployment of inventory backed by powerful digital engagement and ecommerce platforms and rapid fulfillment networks,” he said.

Howard Meitiner, former CEO of Sephora and The Museum Shop, allows that the word “mall’ may fall out of usage, but that the today’s mall must and will evolve.

“People still want to experience physical interaction with products, places, and spaces, but you have to offer a combination of experiences that appeal to today’s customers,” said Meitner, now managing director of Carl Marks Advisors. “It is a challenge, no doubt, but one for which there is a solution, providing the mall owner is willing to evolve the customer proposition.”