What the Death of the American Mall Means

It may not feel like it for anyone shopping on Black Friday, but the mall is doomed. If you cant get it on the internet - and delivered free - then you probably dont need or want it.

The cause is digital to a large degree, but flat incomes, rising costs for car ownership and - a rebuke to climate deniers - climate change is significantly reducing demand for seasonal clothing. One of the big surprises already of this holiday season is that people are buying more housewares than clothing, reinforcing the notion that they are spending more time at home than out and about. T he question is to what degree this is cyclical - or long term. JL

Scott Rothbort reports in Marketwatch:

The American consumer is not sitting on their wallets. They are using their cash and cards in different ways and in difference places, many of which are digital. As for the American Mall, death is certain

 

Big box retailers such as Macy's M, -0.97%  and Nordstrom JWN, -0.31%  reported weak results and both stocks came crashing down, inflicting damage on the retail sector and equity markets in general. I contend that what is happening to these companies is not a result of a weakening economy. Rather, it is due to a secular change — a paradigm shift — in consumer behavior and retail commerce. Investors fail to recognize this at their own peril.
What is most remarkable, in this shift, is the decline of traditional shopping, over the past few years, at malls across the country. I refer to this phenomenon, with no sense of hyperbole, as "The Death of the American Mall." Recently I discussed this theory and its consequences for investors on WSJ Podcasts and Bloomberg Radio, but wanted to put my thoughts in writing for our MarketWatch readers.
Do you remember the classic movie "Fast Times at Ridgemont High"? It was a story which revolved around teenagers working and hanging out in a mall. I grew up in the 1960s, went to high school in the 1970s and graduated from college in 1982. During those years, malls in the United States were a destination for teens, tweens and young adults. You would go there to get the latest record release (those were vinyl disks which played music on a turntable), shop, grab a meal, see a flick or just hang out with friends. It was also a great place to get a job.

Over 30 years after the release of that iconic movie in 1982, the popularity of large shopping malls is now in decline, and racing toward demise. In 2015, this fact has become increasingly apparent to many consumers, retailers, mall operators and investors. So what is killing the American malls? It is a result of several economic and societal issues. Here are some of causal factors which support my opinion:

• Going to the mall as a destination or hangout is simply no longer necessary. Years ago, young people would go to a mall to see and be seen. That is no longer the case. With smartphones like Apple's AAPL, -0.19%  iPhone, you can text message (group or individual) and video chat. If you want to watch a movie, you can download it from any one of many streaming services such as Netflix NFLX, +1.03%  , Apple's iTunes or Ultraviolet. Want some pizza or other food? Then just go to an app and order it for delivery. As for records, well, now we have digital downloads.
• Traditional malls were built in such a configuration that at each end of the mall a big box "anchor store" was placed. These were stores owned and operated by Macy's, Lord & Taylor, Bloomingdales, Nordstrom, Sears SHLD, -1.38%  and JC Penney JCP, -0.73% to name a few. Sears and JC Penney are both companies which are struggling to survive. The concept was to drive traffic into the mall via the big box retailers. That is no longer happening as it was in the past. In fact, in my travels to malls across the United States, I am noticing more vacant stores within malls that do not have a "coming soon" sign. I mentioned Apple before. Stores in malls which have an Apple retail store tend to have higher sales than stores in malls without an Apple retail store.
• The American consumer is astute and far more intelligent than they are given credit for. Using the Internet, they are able to perform price discovery and get the best prices for nearly any type of product. Shipping for many retailers is free. Amazon AMZN, -0.31%  even has a premium service, Amazon Prime, which guarantees two day delivery and subscription to its streaming video service. Furthermore, the brick-and-mortar chains have built up their direct-to-consumer web-based sales and logistics networks. So, even with gas prices as low as they are, the need to drive to a store, deal with parking hassles and waste valuable time is lessened with modern shopping technology.
• Uncertainty in weather patterns has made purchasing apparel on a seasonal basis more difficult. We don't know if the winter will be cold or snowy or seasonably warm. Back when I was young, mom would take my brothers and me to shop for fall and winter clothing in late August or early September. Based on third-quarter earnings results and anecdotal research, it is clear that is no longer done. As a father of five children and professor at Seton Hall University, I have noticed students wearing spring and summer clothing all year round — shorts, flip flops, sandals, etc. Winter jackets are being replaced by hoodie sweatshirts and layering. Furthermore, there is a population shift out of cold northern states into warm weather southern and western states. Just look at this data and these charts from the U.S. Census Bureau. Now living a large portion of the year in Henderson, NV, I only have one wardrobe and my biggest question when dressing is: do I wear long or short pants. If necessary I throw on a hoodie or light jacket.
• The emergence of premium outlet centers is replacing the traditional mall as a destination. Why buy a Coach COH, -1.76%   pocketbook or Ralph Lauren RL, -1.29%  shirt at full price at the mall when you can go to an outlet center and get them for 50 – 70% off? Sharp retail operators such as Tanger SKT, +0.69%  and Simon Property group SPG, +0.80%  recognize this trend and continue to build out new outlet properties.

So, as you can see, the American consumer is not sitting on their wallets. They are using their cash and Visa V, +0.35%  cards in different ways and in difference places, many of which are digital. As for the American Mall, unless it's an upscale mall or mall operators can reinvigorate their properties (as some have done with more casual dining and high end restaurants or amusements), then the prognosis is dire, and investors should take heed. The Death of the American Mall is certain and Robin Sparkles will be sitting at home texting away, watching Netflix and ordering from Domino's Pizza DPZ, -0.46%  rather than going to the mall. No wonder Americans are getting obese and diabetes in on the rise (but that's an article for another time).

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