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Shopping Centers on the Brink of Collapse

SEP 22, 2020 • 3 MIN READ

In the '80's, suburban shopping centers were the place to be. Teenagers were strutting around the shopping malls socializing and gleefully showing the conquest of their recent purchase.

Shopping centers thrived as the social and shopping hub of yesteryear. Today, the Internet has taken large swaths of both socializing and shopping into the digital age, while shopping centers are now starting to look like ghost towns.

And that was before the pandemic. Coronavirus has accelerated the inevitable: the death of the shopping mall.

It's inevitable because shopping malls have continued to reduce their brands and products to mere commodities. It's hard to tell one retailer from the next, and the products offered—to put it politely—are generally cheap.

No blame put on the mall managers, they merely want a reliable tenant to pay the bills. It's more efficient if you own three or four locations, to put a chain operator in all of your locations rather than find interesting local shops. Over time, malls have become the landing pad for large chain retailers and their products have a vanilla mass-market-appeal. In a mall you can find something for everyone, but nothing special for someone. to boot, retail salespeople have lost much of their expertise, and in many cases, even their enthusiasm.

Malls are dying and the Internet is killing them.

The question for the large retail developers like Simon Property Group and Westfield (Unibail-Rodamco-Westfield) is: What should they do?

These developers should focus on doing things the Internet cannot. They need to put the soul back into their centers. Fancy architecture aside, soul has been missing from centers for the better part of a decade.

Let's start with what they should not do: Convert JC Penny's and Sears locations to Amazon fulfillment centers. I get it, these are large stores and some rent is better than no rent, but adding a fulfillment center will be the last nail in the coffin for everyone who adopts this plan. Just ask the City of Dupont how gleeful they are about the Amazon Fulfillment Center, or the City of Lacey how they feel about the Target Distribution Warehouse. These light industrial locations provide massive truck traffic, few low-paying jobs and very little tax. They are a lose, lose, lose for the community. For a shopping center, they will be pure disaster.

Rather, developers should look to successful redevelopment projects for cues. They should look at projects like the Pearl District Brewery Blocks in Portland, OR. These development have places for people that can't be replicated on the Internet.

I would generally describe this kind of a project as a lifestyle, experience or custom-culture development. They are vibrant because people like to be there and socialize with people IRL (in real life).

If I was in charge, I would provide incentives to retailers who provided "custom-culture" products and services. I would give them premium spaces in the heart of the shopping center, with private parking, and repriced rents. I would look for custom clothes makers, artists, designers who may even be on a sales-based rent. In return I would get commitments from them to no sell on Internet marketplaces. In other words they would protect their brands and their prices.

For instance, you could only purchase their custom jeans at these locations. Or get a custom leather purse made, or custom pottery or woodworking from these stores. It would be fantastic to bring some level of galleries back to the shopping mall and restore the soul.

Commercial real estate is being repriced. If not yet by the developers, certainly by the markets. They will soon need to decide who they offer the repriced assets to: Those who will ultimately kill them, or those who will evolve with them. Developers may need to rethink some of their spaces and consider large swaths of space as traffic-generation rather than simply profit generation.

It will be interesting to see how imaginative developers become over the next few years. I suspect those who pick off easy money with Amazon will fail, and those who re-imagine their centers as experiential places will thrive.

Time will tell.

Places  Experiences  Westfield  Simon  shopping centers