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DEEP DIVE: The Mall Is Not Dead: Part 1

(Source: Fung Global)

There are 1,221 malls in the US today, according to the International Council of Shopping Centers (ICSC). The number of malls increased by more than 300% from 1970 to 2015. Given the oversaturation of malls in the US, we believe that at least 30% of malls—mostly within the C and D classifications—need to be closed.

Malls classified as A properties are the most productive: they account for only 20% of all malls, yet represent 72% of total mall sales.

Even though retail traffic at malls has declined, retailers such as Tesla Motors and Apple are choosing to locate stores in malls in order to expose their brands to meaningful traffic.

The top 10 malls in the US see average sales per square foot of over $1,000. Four of these malls are located in Florida and two are in New Hampshire, which has no sales tax. Two are in tourist locations and two are outlet malls.
Other reports in this series will analyze department stores in malls, trends impacting malls, malls’ evolution and store concepts that are expanding.

Sales at A Malls Have Grown by Double Digits Since 2012

According to General Growth Properties, A malls have experienced double-digit sales growth since 2012. These malls’ sales have grown by 20% since 2012 in the most populated markets across the US: Atlanta, Boston, Chicago, Dallas, Houston, Los Angeles, Miami, New York, Philadelphia and Washington, DC.

The top-performing malls usually are located in or near major urban or tourist areas. The table below shows the top 10 malls in the US by sales per square foot. Of these, four are located in Florida, two are located in tax-free New Hampshire, two are retail outlet malls and two are located in resort destinations (Las Vegas and Honolulu). Sales per square foot at Orlando’s Mall at Millenia—the mall ranked at the bottom of the list of 10—average $1,360, which is more than 2.5 times higher than the US mall average of $487.

What differentiates top-performing malls from the average mall? It varies by mall. At some A malls, the addition of Apple and Tesla Motors as tenants has helped boost the malls’ success, given that these brands’ sales productivity is significantly higher than that of typical apparel and accessories retailers.

Top-ranked Bal Harbour Shops in Florida is 50 years old, but the mall continually updates its stores and features the latest in luxury retail and high-end dining. Bal Harbour is anchored by Neiman Marcus and Saks Fifth Avenue, and its website highlights its “social scene,” which includes designer benefits, fashion shows and its fashion magazine.

Fifth-ranked The Forum Shops at Caesars, Las Vegas has a spiral escalator, a 50,000-gallon aquarium for exotic fish and talking statues as part of its Atlantis fountain show. The mall also offers a full range of shopping options, from Versace and Salvatore Ferragamo to Gap and H&M.

Mall operators and owners must reinvest, even in properties in good locations, in order to ensure their malls remain productive; otherwise, those properties will become obsolete.

Mall Occupancy Rate Stabilizes at 94%

The mall occupancy rate has been on an upward trend over the past five years, after hitting a low of 89% in 2009. The overall mall occupancy rate has been stabilized at 94% since September 2014.

Mall Traffic Still Meaningful Despite Declines

Malls have seen an average traffic decrease of 9.1% since January 2015. According to RetailNext, mall traffic in the US has decreased for 42 consecutive months and continues to be challenging.

Higher-end malls have been less affected by the traffic decreases and, according to mall owners, productivity is up at these malls. Specifically, General Growth Properties reported that traffic at its malls was up 2% in 2015. Taubman Centers also reported elevated traffic in 2015. Traffic was flat at Simon Property Group’s malls in 2015, but same-store sales climbed by 5.7%, according to David Simon, Chairman and CEO. Simon Property Group holds 108 malls in its portfolio, totaling 122 million square feet.

Although mall traffic may be lower than in prior years, it is still significant, and some companies are acting accordingly. Tesla Motors, for example, has been moving its showrooms into malls rather than to locations on the outskirts of towns, because malls are where the traffic is. Restaurants located in mall parking lots are moving inside the malls to be closer to foot traffic, whereas they had previously moved out of the malls. The theory that these restaurants are more convenient because they are located in parking lots has not proven to be the case.

Number of Outlet Malls Has Increased by 47% over the Past 20 Years

In 2015, there were 360 outlet malls in the US, compared with 245 in 1996, a 47% increase over the 20 years. The format continues to grow, and six outlet malls are proposed to open in 2016.

In 2015, US outlet center sales averaged $546 per square foot, up from $532 in 2013, according to Value Retail News, the ICSC’s trade publication. Since 2012, 41 outlet centers have opened in North America and another 57 new outlets or expansions are set to open by 2018. Factory outlet gross leasable space has increased by 32.8% since 2005, from 67 million square feet to 87 million square feet.

 

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