America’s Malls Are Overpriced and Running Out of Time

A couple of months ago my wife and I were walking through the Steeplegate Mall in Concord, New Hampshire. It looks like most enclosed malls do, except that there were almost no people there – on a Saturday night. Not a good sign. As is my custom, I asked a mall employee about the dearth of customers. Her response shocked me: “Oh, it’s like this all the time.”

She went on to tell me that she started working there back in 2007, and that the mall went downhill after the recession, and never bounced back. That much was obvious. Based on my rough count, about 25% of the storefronts are empty, including one of the four anchor stores. The food court has only a Dunkin Donuts.

This is actually becoming a trend with enclosed malls across the country.

America's Malls Are Overpriced and Running Out of Time
America’s Malls Are Overpriced and Running Out of Time
There was a time in America – covering close to 50 years – when downtown areas in cities and towns were becoming ghost towns, as enclosed shopping malls were being built all across the country. With their enclosed, temperature controlled buildings, trendy stores and general newness, the malls could easily outcompete the venerable downtown shopping districts.

But now it seems as if the same fate is coming upon the now ubiquitous enclosed shopping mall. Perhaps victims of their own success – or over-confidence – America’s malls are overpriced and running out of time.

The Basic Mall Business Model

I think that the problem has to do with the basic mall business model. It’s no longer working. It was hatched during a different time, a much more robust one. The enclosed mall concept itself was revolutionary, and that’s mainly what drew customers in. It was based around the traditional downtown shopping district concept, but in an entirely enclosed environment, and with a fresh and modern flavor to it. It didn’t take long before “shopping” became synonymous with “going to the mall”.

But the success of the model also contained the seeds of its destruction. Enclosed shopping malls catered to the well-to-do, and it’s reflected in the stores that populate them. Most are in the category of high-end boutiques, offering specialized merchandise that’s significantly overpriced. Two American retail icons, Sears and Macy’s, that once catered to the middle class, went upscale in both style and price as they relocated more stores to the malls.

I suppose the business theory was that people would pay more at a more favorable location. And for decades that model seemed to work. America was growing in prosperity during the 1960s when enclosed malls became a thing, right up through the late 1990s.

But then the dot-com bubble burst in 2000, and that’s the time when I believe that the country’s fortunes – or more specifically, those of the average person – took a downward turn. The malls ignored this turn of events, perhaps putting their faith in either a fundamental reversal of the downtrend, or pinning all their hopes on continued patronage by their core customer groups, the youth market and the top 10% of households.

It doesn’t seem to be working. Last year, Gap Stores closed their outlet at our local mall. I didn’t shed a tear, despite the fact that I was a loyal Gap customer back in the 1980s. Back then, Gap was selling inexpensive Levis for around $8 or $10 a pair, so it became the go-to store for blue jeans. But in recent years they’ve been selling them at $60 a pair.

Since I can buy Wrangler’s at Walmart for around $17 a pair, Gap fell off my itinerary long ago. I suspect that’s the case with a lot of other middle class consumers. The mall may be a pleasing place to hang out, or to make the occasional specialty purchase, but it no longer works for regular shopping sprees. That’s significant.

Amazon is a Factor, But the Basic Mall Business Model is Broken

Since lowering basic price levels is anathema to malls and mall chain stores, they’ve chosen to target a devil in their demise. It’s Amazon. No doubt Amazon is taking a toll too. After all, there’s almost nothing that’s sold at the mall that can’t be bought through Amazon for a lot less – easily.

But Amazon is also serving as a smoke screen that enables the malls and their tenant stores to ignore the rapidly changing demographics of America. If the average consumer can’t afford your merchandise, then you’re future isn’t good.

The more fundamental reality – even apart from Amazon – is that malls are attempting to sell their wares to a customer base that increasingly no longer exists.

As Go the Anchor Stores, So Go the Malls

Most of us hear little of the decline of the mall, and probably wouldn’t pay attention unless it affected the mall we actually shop at. But there’s no escaping the news stories surrounding the department store chains that exist almost exclusively in enclosed malls – Macy’s, Sears, and JC Penney. Reports of restructuring and store closings have become standard financial media issue since the recession.

That has powerful negative implications for shopping malls. “Anchor stores” as they’re known – the national brand name department store giants that exist in virtually every enclosed mall – are the life’s blood of the mall. They’re the stores that draw customers to the mall, rather than the dozens or hundreds of smaller stores that inhabit the spaces in between. As go the anchor stores, so go the malls.

It’s hard to find any enclosed mall anywhere in America that doesn’t have a Sears, a Macy’s, or a JC Penney’s, and many have two, or even all three. But here’s the latest dismal news on each:

Any mall that has one or more of these chains close up shop is in for a rough ride, if they can even survive the fall. The problem is that there are very few willing replacements.

The carnage is also extending to other popular non-anchor mall chains. In 2016 Time provided a list of common mall retailers that have shut down many locations in the past couple of years, including:

  • Wet Seal: 500-plus stores
  • Barnes & Noble: 223 (through 2017)
  • Children’s Place: 200 (through 2017)
  • Aeropostale: 175
  • Finish Line: 150
  • American Eagle: 150 (through 2017)
  • Chico’s: 120 (through 2017)
  • Gap/Gap Kids: 35
  • The Limited: 240

Do you see the pattern? I have to say quite frankly that apart from Barnes in Noble (and Gap back in the 1980s) I’ve never shopped at any of these stores. I suspect many people haven’t or haven’t in recent years. All are over-priced, and sell merchandise that no one really needs. Yet enclosed shopping malls are filled with exactly these kinds of retailers.

Hint: You Don’t See Walmart, Target and Marshalls Closing Stores

OK, for the record, Walmart has closed a very small percentage of its stores, but it’s also been opening new stores. And I read somewhere that Target plans to shutter 13 stores, but is opening new ones as well.

Last year TJX Companies announced that it is planning to expand the number of T.J. Maxx, Marshalls, and HomeGoods stores from 3,700 stores to 5,600 in the next few years. This is a complete reversal of the trend that has overtaken the mall stand-bys.

But do you see the pattern here as well? Walmart, Target and Marshalls et al sell stuff the average consumer wants at prices he and she can afford. They’re living evidence of why the mall business model is no longer working.

The Youth Demographic Isn’t Coming Through Because it Can’t

In the 70s, 80s and 90s malls targeted the youth market specifically. But not only is America getting older, but it’s citizens are getting poorer. That’s perhaps more true of the youth market – the Millennial Generation (those in their late teens, 20s and early 30s) – than it is for the population at large.

The mall model was largely crafted to target the teenager or college student from prosperous families, who had liberal use of their parent’s credit cards. Now that the average household isn’t as well off as it was 20 years ago, and many have fallen an economic notch or two, the “Bank of Mom and Dad” that bankrolled billions of mall shopping sprees has also shut down in many families.

But that’s not the worst of it.

Student loan debt payments, high housing and health insurance costs, and a dearth of well paying, fully benefited full-time jobs have severely limited the financial fortunes and futures of the Millennial Generation.

Many, perhaps most, work in the “gig economy” – that universe of what are sometimes known as slash workers – i.e., the substitute teacher/hair dresser, or the bank teller/barista (I myself, as a refugee from the mortgage industry, was an accountant/blogger for six years!). You probably know some young people who are in that category. Everybody does. It’s the new normal, and it’s not to be under-estimated.

The problem is that millions of gig economy workers are not a strong base for the American mall business model. Ironically, the gig economy might mean more Millennials working at the mall – as yet another gig – than shopping in it.

The Danger of Relying on the “Top 10%”

This became a common business strategy in the 1980s with the advent of the YUPPIE (young, urban professional). It’s based on the idea of selling less volume at higher prices to a more “discerning” (read: richer) client base. In theory, it produces higher profits. The malls certainly bought into the strategy, pricing themselves to sell to the richest 10% of households – the upper and upper-middle classes.

But relying on selling to the top 10% is extremely risky for a number of reasons:

  • Numerically speaking, it’s a very limited group
  • Even top 10% households are affected by economic downturns – and they often react much more quickly than the bottom 90%, since they usually have more options
  • Not everyone in the top 10% are free-spending
  • The wealthiest households tend to be more prone to following trends – they quickly move from one trend to the next, so pinning them down is close to impossible
  • The top 10% tend to be both more time conscious and more tech savvy, which helps to explain the explosion of online shopping and away from bricks-and-mortar stores

This is why I say that the malls are selling to a clientele that no longer exists. If the middle class is financially tapped out, the younger generation faces a more constrained future, and the top 10% can’t be counted on, then the reasons for the demise of the enclosed shopping mall become obvious.

The Future of the American Mall

Last year Time reported that more than one-third of America’s malls will close within the next few years. More specifically, it reported that 400 of America’s 1,100 enclosed malls will fail. Of those that remain, only 250 will “thrive”, while the rest will continue to struggle. There’s even a website dedicated to chronicalling the demise of the hundreds of enclosed malls that have already been shuttered across the country, appropriately named DeadMalls.com.

I’m not an expert on enclosed malls, but from where I sit, I think the only hope most of them will have is if they become more people-friendly, more price-conscious and definitely more relevant. That will mean aligning their formats and pricing to match the lifestyles, finances and preferences of the greatest number of patrons.

Up to this point, they’ve done a miserable job of doing that. In fact, the basic business model infers that the average consumer is entirely unnecessary to the mall existence. But increasingly, the mall has become a place to hang out – without necessarily buying anything, apart from the occasional designer pretzel or an overpriced candle arrangement. That’s not a winning business model.

The fundamental problem is that malls were built on high cost structures – high cost construction in high cost districts, requiring high rents from tenants, who must charge high prices to customers. Unless a mall is situated in the kind of wealthy locations that can support that business model, the cost structure will have to come down. Most likely that will happen through the default or bankruptcy of the mall owners, which is already happening in many locations.

Once that high cost structure has been broken, mall management will have to concentrate on bringing in more affordable stores, and ditching the over-abundant, over-priced boutiques. That might start with non-traditional anchors, like Target, Walmart and Marshalls. It may mean lower priced smaller stores, the kinds that once populated thriving downtown shopping districts, and that sell merchandise that people actually need and can afford. Movie theaters and gyms will likely help, since they can be big traffic generators.

These changes are actually happening at some malls, but they’re the exception. It’s likely that many more malls will close without ever making a serious transition to relevancy and greater affordability. That’s a tragedy too. The basic enclosed shopping mall concept is a solid one, but it’s been overtaken by unrealistic expectations, and unsustainable pricing.

What do you think – is there any hope for America’s malls? Or do you think they’re going the way of the American factory?

( Photo by flightlog )


11 Responses to America’s Malls Are Overpriced and Running Out of Time

  1. Forty years ago the mall opened in my town and everyone cheered the climate control atmosphere. Now, however, there are few customers and while the Macy’s, Sears and Bressmer’s stores that anchor it are safe for now I can’t help but wonder for how long. Now, all the discussions on the town’s group website/blog revolve around how people miss the old downtown shopping area which doesn’t exist any more and the variety of LOCALLY OWNED stores that once existed. Most of the mall stores now seem to cater to the teenage crowd and even the Macy’s number of brands seems to have diminished. I did almost all my Christmas shopping online which has been the case for several years now. The amount of merchandise available online far exceeds what you can get in a store. Plus, as you hear about more and more about gangs of thugs convening at the mall to harass and assault patrons, one becomes wary of venturing out when you can stay safe at home.

  2. Hi Kathy – I’ve seen towns like that, where the downtown area has turned into a ghost town because a mall was built right outside town. When ever I go into a mall I’m stunned by how little they have that interests me. Like a lot of people, I window shop at the mall, then either buy online, or go to a discounter. It looks like that’s becoming more common, and that’s what’s hurting the malls. But they’re dying by their own hands.

    You’ve hit on an interesting side note with the downtown stores being locally owned. My first real job in high school was at a locally owned hardware store, and it taught me how much the downtown business community is a real community. The owners lived locally, knew the other business owners in town, and the customers. It was a true community. The malls stores are overwhelmingly owned by national chains, so community is non-existent. They’re corporate stores for corporate employees and their children. There’s no sense of unity, of “we”, but an environment of complete annonymity and isolation. Maybe todays consumer likes that, but it’s awfully cold, and creates that “alone in a crowd” feeling. That has to be self-destructive.

  3. To a large extent I agree with you. I believe however as consumers have become more comfortable with on line shopping, and the retailer have become more efficient with their shipping (remember when you had to wait 6-8 weeks to receive an item), there really is no great need to “go out shopping.”

    Actually, we work longer hours for the same or less income, and on-line shopping helps us manage our “at home time.”

  4. Hi Joanne – If what you’re saying is true – and I think it is – then lowering prices won’t help completely. Though it might make them more competitive if they do. My thinking is that they don’t have be cheaper than online, but close enough in price that a shopper would be more likely to buy at a store than to order online. Buying at a store does hold the advantage of immediate possession, as well as an easier time with returns. But that lack of time problem you bring up isn’t going to go away and will always favor online shopping. My wife and I are doing more online shopping all the time. But then if the malls are surviving on people like us, then they are truly doomed!

  5. Ecommerce is growing at at 16% clip as of Q3 2016 and now represents a bit over 8% of all retail sales. This compares to total retail sales growth of 2.2%.

    As an owner of multiple online stores, I can confirm what Joanne has said. People are not only comfortable online, but even moving from desktop to mobile when ordering.

    We have one story selling $100 baby items with over 60% of sales from mobile. More startling is the growth in sales at a store selling $1200 household items with 25% of sales on mobile.

    The ascent of ecommerce is killing the malls, despite pretty weak consumer metrics. Save time and money and shop from home!

    Great piece Kevin!

  6. I have been to several malls in my state, both the indoor versions and the open versions but what keeps me away is the type of people who frequent these malls. I thoroughly understand that malls need shoppers to thrive but the people who frequent the malls are not in the genre you mentioned. My son has the “pleasure” of working at a Gamestop in a mall store. This mall is 2 exits northwest of the big huge Woodbury mall in New York and more of the typical size you talked. It is one of the older style malls made by same developer in the area. Being only a 2 storied mall, there are fewer smaller stores but it has a big selection for its size. Big Food Court on one level with lots of seating plus other food stores on other levels. It had 4 anchor stores but the Sears store is closing, I blame it on the trend of moving Sears away from being a tools, appliances and auto shop to selling clothes as primary base. I got a chance to spend a day in this mall checking it out, and did go thru this specific Sears and the only thing I was impressed with was the auto repair center where you could get oil changes and car maintenance and inspections, plus buy tires have them put on. This was the busiest part of the store.

    But what I want to comment about is what is going on in rest of mall. It gets a lot of traffic especially during weekends, holidays and any day that is a mandated federal business closure day for everyone but the retailers. Christmas shopping was extremely busy with very impatient customers hassling clerks. There is also a big influx of customers who try to return items constantly for cash rather than store credit. The food court is utilized by a local vocational school program as a place to let their charges roam unattended in the mall once a week during program sessions. The food court is also used for locals in the area as an indoor picnic area to hold birthday parties or any other events because the space is free for use by community, saving the one holding the party the cleanup and not having to supervise group. (It makes it hard on the shops near the food court because of the unsupervised groups just running around).

    Because I live with a budget, I hate to window shop (too frustrating to constantly tell myself no buying), so I fail to see the excitement in spending the day in the mall especially on bad weather days (this particular mall gets busy on snow days). If I am going out to shop, I prefer an open air mall, so I can enjoy the fresh air while walking around (something about circulated air thru vents makes my nose twitch). Yes the customers are not the top 10% in income who view mall shopping as a means of entertaining themselves while bargain shopping. As I worked retail(supermarket), I totally sympathize with the clerks being hassled. As for the future of malls, it really depends on the area of location, if there is no other place to shop, the customers will continue to come especially if mall has a food court and movie theater with areas to hang around .

  7. Hi Ian – Good to hear your business if thriving (Go entrepreneurialism!!!). In researching this article I came across an interesting factoid: brick-and-mortar locations stimulate online sales. So Macy’s sells more merchandise online in an area where they have a store than in an area without one. People like to order online, then pick up their merchandise at a local store, and return it there if necessary. So what is the conclusion? If a major chain is both selling through both physical stores and online, then they have the best of both worlds. But if their sales are flat or falling, then it’s likely that they’re overpriced. Online, people can price shop. If you have an online presence, but you’re still overpriced, you’re not going to make it. So I’m standing behind my claim that pricing is the core problem.

    Online sales only makes the price factor more significant. I can compare prices with competitors across the country and around the world, and go with the best one. The big chains are tying to maintain high prices even online, and it’s apparently not working there either. But we can suspect that their instore sales are even lower than what’s being published after deducting for their online activity.

  8. Hi Maria – I agree, where a mall is located has a lot to do with the people who shop there and how they behave. But that said, what you’re seeing at the mall – what I think we’re all seeing – is that the behavior is getting worse over time. That’s a cultural shift, and it’s happening everywhere. My wife and I often note the decline of standards and behavior all over the place. It makes sense – in a twisted way – that the degraded behavior has extended to the mall. Just look at all the crap on TV, that’s being imitated in real life. My wife worked at JC Penney for years, and she always told me how people would come in with their kids, and let them run loose and wreck the place, like it was a cheap babysitter alternative. At the extreme, there was a mall where we used to live in Georgia that we went to all the time, but it got to the point where we no longer felt safe there.

    Interesting note you brought up about Sears as this past week it was announced that they’re selling off their Craftsman tool division. That’s one of the product lines they were always best known for, and more evidence that Sears is abandoning the middle class. I don’t see them competing on clothing, as I don’t know anyone who buys clothing there regularly. That said, generally speaking, I think we’ve seen the passing of the golden age of malls, and many will close, continue to degrade, or find a way to redefine themselves.

  9. Not a problem Maria! Your comment was substantial and added much to the discussion, so I took the liberty of doing some editing. (I often see editing mistakes in my own writing YEARS after the fact!)

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