Many Traditional Malls Are on Life Support

In what some economists and many governmental officials say is a robust and growing economy, why are major chains closing 6,000 retail stores in malls and strip centers within the near future?

Standing alone, these statistics relating to the retail store closings are frightening on their face, yet they represent the proverbial tip of the iceberg in connection with the evolution and in many instances the demise of the traditional shopping mall.

Since the beginning of 2015, at least six major clothing retailers that populate the U.S. shopping malls have filed for bankruptcy protection, and most will never emerge to resume any significant degree of business. This is in addition to target Canada filing for insolvency protection and, closing all 123 of its Canadian stores and laying off all employees.

Scheduled Closings

Between Wet Seal, Deb Shops, the Gap and Body Central/Body Shop, almost 1,000 retail establishments are scheduled to be closed in the near future. This does not take into account the many independent retailers located in brick-and-mortar locations or kiosks within the mall where mall traffic is a necessity in order to support not only the big box anchor tenants, but also the individual retailers.

In each instance where a retailer has closed, most, if not all, of the employees will lose their jobs and will then have a difficult time replacing them given the proliferation of retail store closings (which further exacerbates the retail environment).

An analysis of the bankruptcy cases and the planned retail closings discloses the unsettling fact that shopping habits have dramatically changed within the United States, and the traditional shopping malls have failed, refusing not only to acknowledge the changes in consumer preferences, but also to take the immediate steps needed in order to remediate the situation. This has left many formerly prosperous shopping malls on the verge of life support.

Selectivity

One may superficially “blame” the problems on Internet shopping. That has been proven not to be a valid conclusion, as recent statistics show that only 11% of retail sales are as the result of online shopping, and many of these are from the same retailers that occupy the brick-and-mortar malls.

Indeed, the problem has been developing for some time, and the mall owners-operators have been unwilling to recognize and deal with what now may be a mortal malady that may not be able to be remedied.

In interviews with executives of retailers in bankruptcy and insolvency proceedings, they say that the change in shoppers' preferences is one of the most significant factors in the retailers' problems after taking into account over-expansion. Consumers now desire an entertainment experience when contemplating a trip to the mall.

Since virtually all of the same merchandise that is available at shopping malls is also available online and usually with free shipping, consumers are being more selective with their purchases and have indicated that if they are to personally visit the retail location, they want to do so in an environment that is more than a group of virtually identical stores as in a traditional mall.

The shopping malls that are prospering are those that have additional entertainment opportunities such as ice-skating rinks, sophisticated play areas for children, dine-in luxury movie venues, nightly concerts and, very importantly, dining opportunities that are more than food-court offerings and chain fast food franchises.

Tight-Fisted Shoppers

Another precipitating factor is that the economy for the average consumer may not be as robust as represented by some statistics.

Currently, 40% of those unemployed have stated that they had given up in finding employment. These and other factors, such as the proliferation of “dollar stores” evidence the fact that consumers are being much more conservative with their dollars, and retail sales are being adversely affected.

Given the fact that a shopping mall with a high vacancy rate has a domino effect on the other merchants, the lenders to the mall and all of the employees who depend upon the traditional low-end wages for retail employees, this has created a serious problem. In the past economic downturns, this domino effect has proven to create significant financial tidal waves far beyond the retailers that have closed.

An analysis of those retailers that have recently filed for bankruptcy protection as well as those that have acknowledged financial issues further discloses that retailing as we have known it for the last several decades and the traditional shopping mall may be a thing of the past.

Hopefully, those involved with all aspects of retailing will quickly “see the handwriting on the wall” and take whatever steps are necessary, assuming it is not too late, to stem the tide and forestall even greater financial complications.

Charles M. Tatelbaum is a partner with Tripp Scott in Fort Lauderdale, FL, where chairs the firm's creditors' rights and bankruptcy practice. This article also appeared in The Daily Business Review, an ALM sibling publication of this newsletter.

In what some economists and many governmental officials say is a robust and growing economy, why are major chains closing 6,000 retail stores in malls and strip centers within the near future?

Standing alone, these statistics relating to the retail store closings are frightening on their face, yet they represent the proverbial tip of the iceberg in connection with the evolution and in many instances the demise of the traditional shopping mall.

Since the beginning of 2015, at least six major clothing retailers that populate the U.S. shopping malls have filed for bankruptcy protection, and most will never emerge to resume any significant degree of business. This is in addition to target Canada filing for insolvency protection and, closing all 123 of its Canadian stores and laying off all employees.

Scheduled Closings

Between Wet Seal, Deb Shops, the Gap and Body Central/Body Shop, almost 1,000 retail establishments are scheduled to be closed in the near future. This does not take into account the many independent retailers located in brick-and-mortar locations or kiosks within the mall where mall traffic is a necessity in order to support not only the big box anchor tenants, but also the individual retailers.

In each instance where a retailer has closed, most, if not all, of the employees will lose their jobs and will then have a difficult time replacing them given the proliferation of retail store closings (which further exacerbates the retail environment).

An analysis of the bankruptcy cases and the planned retail closings discloses the unsettling fact that shopping habits have dramatically changed within the United States, and the traditional shopping malls have failed, refusing not only to acknowledge the changes in consumer preferences, but also to take the immediate steps needed in order to remediate the situation. This has left many formerly prosperous shopping malls on the verge of life support.

Selectivity

One may superficially “blame” the problems on Internet shopping. That has been proven not to be a valid conclusion, as recent statistics show that only 11% of retail sales are as the result of online shopping, and many of these are from the same retailers that occupy the brick-and-mortar malls.

Indeed, the problem has been developing for some time, and the mall owners-operators have been unwilling to recognize and deal with what now may be a mortal malady that may not be able to be remedied.

In interviews with executives of retailers in bankruptcy and insolvency proceedings, they say that the change in shoppers' preferences is one of the most significant factors in the retailers' problems after taking into account over-expansion. Consumers now desire an entertainment experience when contemplating a trip to the mall.

Since virtually all of the same merchandise that is available at shopping malls is also available online and usually with free shipping, consumers are being more selective with their purchases and have indicated that if they are to personally visit the retail location, they want to do so in an environment that is more than a group of virtually identical stores as in a traditional mall.

The shopping malls that are prospering are those that have additional entertainment opportunities such as ice-skating rinks, sophisticated play areas for children, dine-in luxury movie venues, nightly concerts and, very importantly, dining opportunities that are more than food-court offerings and chain fast food franchises.

Tight-Fisted Shoppers

Another precipitating factor is that the economy for the average consumer may not be as robust as represented by some statistics.

Currently, 40% of those unemployed have stated that they had given up in finding employment. These and other factors, such as the proliferation of “dollar stores” evidence the fact that consumers are being much more conservative with their dollars, and retail sales are being adversely affected.

Given the fact that a shopping mall with a high vacancy rate has a domino effect on the other merchants, the lenders to the mall and all of the employees who depend upon the traditional low-end wages for retail employees, this has created a serious problem. In the past economic downturns, this domino effect has proven to create significant financial tidal waves far beyond the retailers that have closed.

An analysis of those retailers that have recently filed for bankruptcy protection as well as those that have acknowledged financial issues further discloses that retailing as we have known it for the last several decades and the traditional shopping mall may be a thing of the past.

Hopefully, those involved with all aspects of retailing will quickly “see the handwriting on the wall” and take whatever steps are necessary, assuming it is not too late, to stem the tide and forestall even greater financial complications.

Charles M. Tatelbaum is a partner with Tripp Scott in Fort Lauderdale, FL, where chairs the firm's creditors' rights and bankruptcy practice. This article also appeared in The Daily Business Review, an ALM sibling publication of this newsletter.