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    Four Reasons That Traditional Malls and Department Stores are Dying

    Only one new enclosed mall was built on American soil between 2005 and 2015 vs. 54 between 1995 and 2005. Over the past ten years, about 300 malls have closed in the United States (including Northland and City Center, locally), leaving about 1,200 nationally. Another 300 of those still open are considered to be troubled (including Westland and Eastland, locally).

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    Similarly, there were 20 different department store chains in 2000. Today, there are only eight left. The ones that are left are closing more stores than they are opening. Macy’s, the nation’s largest department store company, closed 40 stores in 2016 and announced that they will close up to 100 more locations in 2017.

    Macy’s co-anchor in many mainstream malls, Sears, is in even worse shape. It has sold off assets, made sale/leaseback deals, leased space to competitors, closed upper floors of multi-story locations, and made other moves to cut massive losses. Yet, it is still stuck with hundreds of vacant locations and underperforming stores.

    Meanwhile, “Class A” luxury malls and lifestyle centers (such as Polaris and Easton, locally) are stronger than ever. And at the other end of the spectrum, outlet malls and off-price fashions, including chains owned by department stores like Nordstrom Rack and Macy’s Backstage, are rapidly expanding.

    So why are those formats in-between the high end and the low end in decline? Here are 4 key points to consider:

    Increasing Income Inequality and Diversity

    The middle class (defined as inflation-adjusted household income of $35,000 to $100,000) now controls only 45% of all retail spending vs. 60% in 1980 while the number of households earning $100,000 or more has tripled since then. The malling of America was the corporate response to a post-war mass market that was thought to consist of families with hard-working Dads and stay-at-home Moms (seduced by nationally-advertised must-have products on their brand new color televisions) and their 2.3 kids. That version of America, if it really ever existed, is long gone — Donald Trump’s pledge to “make America great again” notwithstanding.

    Just as we no longer have only three tv channels, the three department store brands (Macy’s, Sears, and Penney’s) found in most midrange malls are no longer sufficient to meet the diverse demands of today’s highly-fragmented consumer markets.

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    Wave After Wave of New Competitors

    Since the first department stores opened in the United States in the mid-19th century, they have faced wave after wave of competition from new retail formats, each chipping away at their dominance. More recent examples include discount department stores (such as Target and Kohl’s), specialty fashion boutiques (such as The Gap and The Limited), off-price retailers (such as TJ Maxx and Marshall’s), outlet stores (such as LL Bean and Coach), and “fast fashion” purveyors (such as Forever 21 and H&M). In 1998, the typical Sears store had 1,400 competing stores within a 15-minute drive-time range. By 2010, this number had grown to 4,300.

    Of course, the latest competitive threat is online retailers. Amazon is the ultimate department store with unmatched selection and variety in every category and same-day delivery service. Clothing is one of the fastest growing merchandise groups in the e-commerce channel.

    Broken Business Models

    To counter increasing competition, department stores have been pressured by eroding gross margins and increasing costs. They have resorted to almost continuous storewide sales where merchandise is marked down 50 percent to 70 percent. Consumers have been trained to never buy anything at full price. Penney’s famously tried to change this strategy to everyday low pricing but was strongly rebuffed by its core customers who like to believe that they are getting a deal. Once a discount is given, the customer always expects it.

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    Like, Whatever…

    The Millennial Generation now has more collective spending power than their parents, the Baby Boomers. If there is one thing you can be certain of, it is that whatever one generation thinks is cool, their children will roll their eyes at it. Close observation reveals distinctive habits that separate Millennials from Boomers. For instance, surveys show that 63 percent of Millennials dress to stand out among their peers vs 59 percent of Boomers who prefer to blend in. Shopping at major department stores is great for those who want to blend in.

    Attentive, personalized service is valued by Boomer shoppers while Millennials prefer self-service. They do not want to exchange pleasantries with sales clerks. They can get all the info they need from their ever-present smart phones and social media. Also, Millennials are more interested in electronics (not a department store strength) than clothing, compared to Boomers when they were at that age.

    In conclusion, if department stores are indeed becoming dinosaurs, the vast majority of traditional enclosed malls will need to be reinvented as something other than monolithic single-use properties. There is no one magical formula to save all dying malls. Each property and market is different and requires research and analysis to identify the best uses for its redevelopment strategy.

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    Chris Boring
    Chris Boringhttps://columbusunderground.com
    Chris Boring has over 25 years of educational and vocational experience in retail marketing research and strategic planning, and has directed dozens of projects throughout the United States, as well as overseas.
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