1 in 4 malls may close in the next five years

The growth of e-com­merce will con­tinue to hurt sales at bricks-and-mor­tar stores, new re­port finds

Los Angeles Times - - BUSINESS BEAT - By Makeda Easter makeda.easter@la­times.com

Be­tween 20% and 25% of the na­tion’s shop­ping malls will close in the next five years, ac­cord­ing to a new re­port from Credit Suisse that pre­dicts e-com­merce will con­tinue to pull shop­pers away from bricks-and-mor­tar re­tail­ers.

For many, the Wall Street firm’s find­ing may come as no sur­prise. Long-stand­ing re­tail­ers are dy­ing off as shop­pers’ habits shift on­line. Credit Suisse ex­pects ap­parel sales to rep­re­sent 35% of all e-com­merce by 2030, up from 17% to­day.

Tra­di­tional mall an­chors, such as Macy’s, J.C. Pen­ney and Sears, have an­nounced nu­mer­ous store clos­ings in re­cent months. Cloth­iers in­clud­ing Amer­i­can Ap­parel and BCBG Max Azria have filed for bankruptcy. Bebe has closed all its stores. The re­port es­ti­mates that around 8,640 stores will close by the end of the year.

Re­tail in­dus­try ex­perts say Credit Suisse may have un­der­es­ti­mated the scope of the up­heaval.

“It’s more in the 30% range,” Ron Fried­man, a re­tail expert at ac­count­ing and ad­vi­sory firm Mar­cum, said of the share of malls that he pre­dicts will close in the next five years. “There are a lot of malls that know they’re in big trou­ble.”

By ig­nor­ing new shop­ping cen­ters be­ing built, the re­search note took an overly sim­plis­tic view of the chang­ing land­scape of shop­ping cen­ters, said an­a­lyst David Mar­cotte, se­nior vice pres­i­dent with Kan­tar Re­tail.

“There are still malls be­ing built,” Mar­cotte said. “Pre­dom­i­nantly out­let malls and life­style malls.”

The change may not af­fect all sec­tors of the mall econ­omy evenly.

Paula Rosen­blum, co­founder and re­tail an­a­lyst at RSR Re­search, be­lieves the re­port over­states the risks, and says lower-tier shop­ping cen­ters in par­tic­u­lar would bear the brunt of the blow.

“The prob­lem with a lot of th­ese stud­ies ... is they look at what’s dy­ing, they don’t look at what’s be­ing born,” Rosen­blum said.

But an­a­lysts agreed that to sur­vive and stay rel­e­vant, malls need to make se­ri­ous changes.

“A lot of malls are be­ing re­done. We are see­ing mixed-use, many more restau­rants and ser­vice providers, and less cloth­ing stores,” Fried­man said. “You’re go­ing to see a fu­ture where you’ll be liv­ing at the mall.”

“If you have food and en­ter­tain­ment, that gives you a court to build around,” Mar­cotte said. “Once you get past that you need to cre­ate a space that is life­style ori­ented.”

Rosen­blum says shop­ping cen­ters will be driven by the de­mands of mil­len­ni­als and mem­bers of Gen­er­a­tion Z be­hind them, who are more likely to spend money on en­ter­tain­ment rather than just cloth­ing.

Malls, Rosen­blum said, “are go­ing to be­come more of a des­ti­na­tion, not just for shop­ping but for ac­tiv­i­ties and ex­pe­ri­ences.”

Spencer Platt Getty Images

TRA­DI­TIONAL mall an­chors, such as Macy’s, J.C. Pen­ney and Sears, have an­nounced nu­mer­ous store clos­ings in re­cent months. About 8,640 stores will close by year’s end, a new re­port es­ti­mated. Above, teenagers at a Penn­syl­va­nia mall slated to close in the com­ing months.

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