Traditional mall anchors are fading away
The American middle class is disappearing, and with it, the mall anchor store.
As he pushed a shopping cart at T.J. Maxx the day after Christmas, Ahmet Kula made it clear he likes nice things but isn’t willing to pay full price for them.
“I like the prices and quality in here,” the 45-year-old limo driver from Levittown, Pa., said. “I like Macy’s, too. But it’s too expensive.”
Then he whipped out two Sears credit cards he said he hadn’t used in months, for the same reason.
Kula represents that middleof-the-road shopper, neither low-end nor high-end, who in recent years has become elusive for shopping malls — and is the reason why Macy’s, Sears, and J.C. Penney are shutting stores.
It’s anchors away — or at least adrift — at many malls, for these reasons, among others:
• The number of households living below the poverty level has doubled since 2008, according to the U.S. Department of Agriculture’s Food Stamp Program. With that, disposable income has decreased.
• Off-price chain retailers such as Ross Dress for Less, Marshalls and T.J. Maxx, as well as high-volume, rock-bottom-priced, trendy upstarts such as H&M and Forever 21, are growing their footprints.
• Department stores that are the traditional mall anchors tend to have higher prices, and consumers such as Kula are looking for the best deals at the lowest prices.
• The enclosed shopping mall, as we know it, also is at a crisis point, between these hurdles and ever-more-daunting online competition.
“The structural pressures facing malls should show no signs of abating,” said retail analyst Simeon Siegel, of Nomura Securities International Inc. That doesn’t mean all department-store anchors should close.
“At the end of the day, stores provide an experience that e-commerce cannot, so the challenge becomes figuring out the right balance,” Siegel said. “But generally speaking, I believe the growth of e-commerce is going to reduce profitability. For better or worse, it is the new norm.”
That new norm has been nothing less than brutal on the former mall stars, whose glow continues to dim nationwide.
Sears has closed 152 mall stores since 2007. Penneys closed 40 locations in 2015 alone.
Meanwhile, Macy’s plans to shutter up to 40 stores in the early part of this year. Those locations, the majority of them in shopping malls, are to be announced soon.
“This is a continuation of a struggle,” said Keith Jelinek, senior managing director for the retail and consumer division at FTI Consulting. “And what we’re
going to see in 2016 is a strong market for integration with mergers, especially in the regional markets.”
Fifteen years ago, Jelinek said, there were 20 department-store brands anchoring U.S. malls; now, there are eight. That’s the result of sweeping industry consolidation.
Newport Beach, Calif.-based real estate and retail consultant Green Street Advisors L.L.C. put at three dozen the number of elite, very high-performing U.S. malls rated A++.
But standing in contrast to those high-achievers are more than 700 U.S. malls with lower grades, Green Street says.
It’s within that vast sea of mediocrity that department-store anchors have had the most difficulty, industry analysts say.
“Macy’s, Neiman Marcus, Lord and Taylor, among others, are adding stores that are not on the mall,” said Howard Davidowitz, a retail consultant based in New York. “They are all going in the off-price [direction] because T.J. Maxx and Ross stores are killing them.
“In terms of sales, margins and ROI [return on investment], these guys are grabbing market share by offering brands at a lower price because they have lower costs,” Davidowitz said. Department stores “are high-cost operators with multi-level stores that are oversized and inefficient in these dumpy malls.”
Howard Riefs, a spokesman for parent company Sears Holdings, cited other examples over the last five years in which Sears has rented out space to retailers and restaurants, including Whole Foods, Dick’s Sporting Goods, Nordstrom Rack, Forever 21, and Aldi, to bring in new revenue.
Davidowitz, the consultant, said that the closure of mall anchors isn’t likely to end, and that imperiled retail chains are trying to control their destinies.
“Department stores are currently working on expanding in new outlet-center formats, offprice divisions, and off-the-mall concepts and smaller urban store formats,” he said.
“People are shopping off the malls at Walmart, Dollar General, Target, T.J. Maxx, Ross, Burlington Coat,” he said. “Those are the guys doing the business.”
Department stores “are high-cost operators ... that are oversized and inefficient in these dumpy malls.”
Howard Davidowitz A retail consultant based in New York