Malls’ fading popularity may be long-term trend
“There’s always parking at Sears.”
As marketing slogans go, that version probably wouldn’t do much to attract customers. It would, however, be mostly accurate, and not just for the ailing retailer founded by Richard Warren Sears and Alvah Curtis Roebuck in the late 19th century.
Brick-and-mortar department stores like Sears are feeling the effects of economic upheaval just as intensely as their more widely lamented manufacturing counterparts. For the fiscal year ended in January, Sears Holding Corp. reported an operating loss of nearly $2 billion.
As recently as 2011, Sears (and its Kmart unit) had more than 3,500 stores; after the latest round of closings scheduled for early 2017, only about 1,500 will remain. Since 2005, more than 100,000 Sears employees have lost their jobs.
Other large department stores are in similar trouble.
Macy’s will close about 14% of its 728 stores this year and J.C. Penney will shutter 13% of its 1,014 locations. Writing in Forbes, retail analyst Walter Loeb predicted that 21 retailers alone will close almost 3,600 physical outlets in 2017 at a cost of about 50,000 jobs.
We don’t hear much about lost retail employment. Perhaps that’s because the lack of an obvious scapegoat has denied service-sector workers a political champion. Those workers also tend to be less male and less white and thus have less political power. You might also speculate that the creative destruction that is an inherent (if painful) component of free-market capitalism is for whatever reason better understood in retail than in pockets of industrial America.
Yet many retail jobs also are in cities with diverse economies that could allow for sideways movement within the labor market. Whether due to political failure or not, that isn’t always the case for smaller communities whose economic fortunes might hinge on a single employer.
Have money, will travel
Beginning in the 1950s, enclosed suburban shopping malls became emblematic of an increasingly mobile, consumerdriven society.
With real discretionary household income growing at roughly double the current rate, Americans were flush with cash. At that time, the U.S. population also was significantly younger, providing a demographic tailwind to the favorable economic profile. Later, Gen-X consumers turned “hanging out” at the mall into a social-cultural ritual.
But malls also can be symbols of commercialism gone amuck. The morning after my mother died, I recall walking zombie-like through a mall and being approached by a pushy salesperson hawking a cellphone plan. The contrast between what mattered and what did not couldn’t have been more clear.
Construction of the nearly 5-million-squarefoot Mall of America in Bloomington, Minn., in the early 1990s neatly symbolized the top of the physical retail market. Since then, mall overbuilding has led to overcapacity, triggering rounds of urgent downsizing.
Anchors away
Waning consumer preference for the traditional department store could have a major impact on the many smaller retailers operating in the nation’s 1,100 enclosed malls.
Jan Rogers Kniffen, an investment consultant, told CNBC last year that the loss of so-called anchor stores like Sears and Macy’s eventually will force the closure of about one-third of enclosed malls and severely undermine the profitability of the two-thirds that survive the shakeout.
It’s hardly surprising that the steady growth of e-commerce has coincided with the failure of physical retail outlets. Since 2007, online sales as a percent of all retail sales has nearly tripled, to just over 8%. Last year, e-commerce sales reached almost $400 billion, an increase of 15.1% from 2015. Meanwhile, total retail sales grew by a meager 2.1%.
The broad retail sector is off to sluggish start in 2017, calling into question the growth assumptions that underpin the surge in stock prices since November.
Despite the highest consumer confidence readings since 2000, retail sales have fallen for two consecutive months. Over the last year, the average retail stock is up just 1%, compared to 11% for the S&P 500. With shoppers taking a wait-and-see attitude, economic growth in the first quarter could come in at barely above stall speed.
Of course, two months do not a trend make. The post-election bump in consumer confidence could yet turn into a bump in consumer activity. If it does, you’ll know where to park.