/// Why Malls Are Getting Mauled
Image by Paul Hohmann “Online is clearly taking share from brick and mortar. … [T]his is likely to continue” —International Council of Shopping Centers, last week America has too many malls. I’ve recently blogged that many traditional brick-and-mortar retailers are being threatened with “ economic destruction ” by their advantaged online competition. In an interview with Bloomberg TV, anchorwoman Nicole Lapin asked about the implications of this dynamic on retail real estate. I said I hadn’t studied it, but I thought the ramifications would be very big and very negative ( I believe the phrase “apocalyptic” was used ). I’ve since had the opportunity to spend some time looking at this issue, and I believe we’re seeing clear signs that the e-commerce revolution is seriously impacting commercial real estate. Online retailers are relentlessly gaining share in many retail categories, and offline players are fighting for progressively smaller pieces of the retail pie. A number of physical retailers have already succumbed to online competition, including Circuit City, Borders, CompUSA, Tower Records and Blockbuster, and many others are showing signs of serious economic distress. These mall and shopping center stalwarts are closing stores by the thousands, and there are few large physical chains opening stores to take their place. Yet the quantity of commercial real estate targeting retail continues to grow, albeit slowly. Rapidly declining demand for real estate amid growing supply is a recipe for financial disaster. There are very few thriving physical retailers these days outside of the daily consumables markets. I did a quick analysis on the high-level health of the National Retail Federation’s list of the Top 100 retailers in 2012, focusing on merchandise retailers that would likely be located in malls (removing grocery, drug, restaurant and online retailers). I looked at three measures of retailer health: total sales growth, comp store sales growth and number of stores. The analysis doesn’t paint a very pretty picture regarding the health of the leading physical retailers in the United States. Total sales growth is mixed and is negative for 20 percent of the sample. Comp store sales growth — arguably the key measure of retailer health — is also mixed, and a quarter of the sample is negative. And note that many of these sales results include the retailers’ online segments, so the picture for their physical stores is even worse
Why Malls Are Getting Mauled
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