According to a new Credit Suisse report, up to 25% of U.S. shopping malls may close in the next five years.
What are the reasons? Of course Amazon and online shopping is a major reason. However, another factor is mall overexpansion. Currently there around 1,200 malls in the US. Between 1970 and 2015, the number malls grew more than twice as fast as the population. As such, it is predicted that within the next 10 years, that number will decline to 900.
Of course brick-and-mortar retail stores will never completely disappear because of the needs listed above and because of the fact that humans are social by nature. Just the type and make-up of retail stores will change. Possibly pop-up stores (a strategy utilized with great effect by Halloween stores) will become more common?
What to do with vacant buildings? That’s a lot of land that could be used for other use. Maybe mall owners will lower their rental rates. In some areas of Manhattan, retail rents have declined 10-15%.
More housing? Closures from major chains like Macy’s and J.C. Penney are pouring up to 37 million square feet of space back into the market. That could reduce some housing costs. Although, generally more expensive housing markets have greater discretionary spending which is often used for shopping. Also, the time and cost to demolish existing structures, rezone, and rebuild into residential properties along with its infrastructural linkages is not insignificant.
Some mall owners have indicated that vacant properties will be renovated and updated in efforts to attract new tenants and raise rental rates.
What to do?
Who knows that the future will bring but keep in mind that juggernauts like Walmart, Macy’s, and Sears are affected so starting a service or online store that doesn’t compete with what Amazon sells is a safer option. Brand your own product (e.g. Bonobo, Dollar Shave Club), and controlling your own distribution is another option (of course be aware of knock-offs). B2B businesses (e.g. no one buys industrial components at malls) are insulated from mall closures.
Services such as dentistry, restaurants, car mechanics, large difficult-to-ship products such as mattresses, etc. will remain (so far) an insulated industry.
Analyses such as what I have done above is a small and cursory part of the industry/market analysis and strategy consulting services I provide to clients.