Malls are making a comeback, but just how long will they last?
Recent earnings reports from Simon Property Group, the largest mall operator in the United States, have significantly surpassed Wall Street's expectations. These profits not only surpassed the dismal period of last year but even exceeded those of the second quarter of 2019. Simon Property Group announced two dividend increases for this year and even CEO David Simon seemed surprised by the speed of recovery.
"The strategies we employed during the worst phases of the pandemic have worked better than expected," Simon told investors last week. "We held onto our properties. We bet on recovery. We see the benefits of that."
Another major mall operator, Retail Properties of America, reported a per-share profit for 2019 that also exceeded expectations.
This rapid recovery from the dire situation over a year ago is impressive.
Many malls, particularly traditional indoor malls, were forced to close due to stay-at-home orders and rental payments were halted. Anchor tenants such as JCPenney and Neiman Marcus declared bankruptcy and closed numerous stores. Other retailers, like Lord & Taylor, completely collapsed. Several large mall operators, including Washington Prime Group and CBL Properties, filed for bankruptcy, operating more than 100 malls each.
Retail experts are also impressed by the mall recovery.
"Malls have clearly recovered from the pandemic," said Neil Saunders, managing director of GlobalData Retail. "Consumer spending is high. People haven't spent all their stimulus money yet. There's a catch-up effect. That's why retailers are reporting great numbers."
However, Saunders warned that the favorable environment won't last forever.
The recovery has been uneven, said Ana Lai, a retail analyst at Standard & Poor's. While Simon Property Group operates high-end malls, other operators are not nearly as well-positioned in terms of tenants or locations.
"There are many malls of varying quality," Lai said. "I'm not sure we'll see a recovery in malls of lower quality."
Long-term trends that have negatively impacted malls for years have only been exacerbated during the pandemic.
Shopping habits are shifting away from malls and towards online retailers like Amazon, as well as large competitors that are not typically found in malls, such as Walmart and Target. Both retailers kept most of their stores open during the shutdowns, as they sell not just fashion items but also essentials like groceries. They have improved their online ordering, same-day delivery, and curbside pickup options, allowing them to gain market share previously dominated by malls.
"Retailers that did well during the pandemic were not rewarded," Sanders said.
During the pandemic, new problems have emerged, particularly the fact that blockbuster movies are no longer being released in theaters, including movie theaters in malls, before going to streaming services at home. Movie theaters have only seen a fraction of the traffic they had before the pandemic, which further impedes the long-term prospects of malls.
Additionally, the recent surge in COVID-19 cases due to the Delta variant presents a threat. There are early signs that foot traffic in malls has decreased this month since mall operators and retailers have closed their books for the second quarter.
Traffic at malls was analyzed by CNN Business using real-time foot traffic data from InMarket, a research company that uses mobile phone tracking information to derive visitation data for various locations. The study found that mall foot traffic increased by 4% compared to the same week last year. However, foot traffic by the end of July was down 75% compared to the same week two years ago. While foot traffic in malls reached 80% of their levels from two years ago in early July, it was only 7% higher in late July.
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The resurgence of brick-and-mortar retail, including malls, is a result of both the pandemic and growing online competition.
- Pandemic Impact:
- Decline in Foot Traffic: The pandemic accelerated the shift to online shopping, leading to a decline in foot traffic and sales for many brick-and-mortar stores, including malls.
- Return to In-Person Shopping: As consumers emerge from their pandemic cocoons, there has been a return to in-person shopping, driven by the desire for unique, personalized shopping experiences and the need for tangible brand interactions.
- Online Competition:
- E-commerce Integration: Retailers are adapting by integrating their physical stores with online platforms to offer seamless shopping experiences, known as omnichannel retail. This integration helps to bridge the gap between online and offline shopping.
- Emergence of Hybrid Retailing: The rise of hybrid retailing, which combines online and offline strategies, ensures greater reach and customer retention. Malls are evolving to support this hybrid model by providing infrastructure and marketing support for local businesses.
- Adaptation and Innovation:
- Mall Revival Strategies: Malls are shifting towards collaborative models that prioritize partnerships with local businesses, focusing on experience-driven shopping, sustainable business practices, and supporting small, eco-friendly brands.
- Investment in Technology and Store Formats: Major retailers like Dollar General and Starbucks are investing in new store formats, technology, and omnichannel strategies to stay ahead of the curve. This indicates a positive outlook for the future of retail, as consumers still value convenience, affordability, and a seamless shopping experience.
- Regional Variations and Opportunities:
- European Retail Revival: European retail values are showing signs of stabilization, with select markets trending stronger. Southern European and Central and Eastern European malls are offering opportunities for capital growth and stable income returns.
- Indian Retail Landscape: In India, malls are playing a crucial role in helping local businesses transition from small-scale operations to national and global players. Malls provide structured retail environments, marketing support, and access to a vast customer base, empowering small brands to scale nationally.
The long-term prospects for traditional mall businesses are positive, driven by their ability to integrate with online platforms, support local businesses, and focus on experience-driven and sustainable retail practices.
