Excellent article from Jeff Jordan http://jeff.a16z.com/2012/12/21/why-malls-are-getting-mauled/ about the coming day of reckoning for our mall based retail paradigm. These malls will come tumbling down. There are 1,000 large malls in the country and over 200 of them have vacancy rates over 35%. They constitute the ghost malls of America. The thousands of strip malls are in even worse shape, as mom and pop retailers don’t have the staying power of dying behemoths like Sears and JC Penney. The author points to on-line retailing as the reason for the coming demolition of malls across America. He is partly right. The numbers speak for themselves.
In 2007 the total retail sales, excluding auto sales, in America were $3.09 trillion. In 2012 they will be approximately $3.45 trillion. That is a 12% increase in five years. This is not very good considering government reported inflation was 11% and real inflation for real people was closer to 20%. If you back out gasoline sales, then retail sales only grew by 8.7%. Now we get to the internet retail revolution. Internet retail sales totaled $309 billion in 2007 and will total $435 billion in 2012, a phenomenal 41% increase in five years. If you back that out, then retail sales from bricks and mortar mall based stores only grew by 6% in the last five years. This is an epic fail. We know for a fact that Sears and JC Penney are in death spirals. One or both are the anchors in most of the largest malls in the country. Their eventual bankruptcy will be the final nail in the coffin of mall based retailing. As the price of gasoline continues to rise, internet sales will continue to eat away at bricks and mortar. We are watching a slow motion train wreck in progress.
Jeff Jordan’s charts showing vacancy rates in malls reveals another truth. With vacancy rates this high, real estate developers should be going bankrupt, as their rental income can’t possibly be covering the interest expense on their loans to the Wall Street banks. The Wall Street banks have pretended the loans are being paid and the developers are pretending to pay them. Ben Bernanke and the Fed have instructed the Wall Street banks to not foreclose on these developers for non-payment, waiting for the economy to recover. It hasn’t happened and will not happen. There are hundreds of billions of bad debt sitting on JP Morgan, Cititcorp and the rest of the criminal cabal banks that should be written off today. The imminent demise of Sears and JC Penney will be the reality check as developers go under en masse.
The delusional retail CEOs will never admit the truth until it is too late. These brilliant strategists all use the same game plan. As sales continue to decline, they cut staff and reduce benefits. Have you been in a big box retailer lately? Try finding a worker who knows anything. As the experience of physically visiting a retail store becomes so repugnant that it makes you physically ill, you do more of your purchasing on-line. It’s a slow steady spiral downward for bricks and mortar retailing – except for JC Penny were it is a rapid spiral. Most of the major retail chains have either stopped expansion or slowed it dramatically since 2007. Even with no new stores, sales continue to deteriorate. Middle class America has run out of money. The lack of expansion is about to transition to the closing of thousands of stores in the next few years.
Maybe the government can make lemonaide out of lemons. The 200 or 300 ghost malls can be converted to FEMA holding facilities or massive soup kitchens and homeless shelters after the USD collapses. I always try to find the bright side to a bad situation. 
Why Malls Are Getting Mauled
Online is clearly taking share from brick and mortar…this 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% 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. Lastly, store counts are simply stagnant—about as many top retailers shrank their store count as expanded it, and precious few are expanding aggressively. The largest retailers in the U.S. do not look very healthy. And if they’re struggling, it’s likely that their more marginal physical competitors are struggling even more.
I went back to the Top 100 retailers in 2007 to see how that crop had fared five years later and found that four of these top retailers had already gone away through Chapter 11. Interestingly, the picture of these four doesn’t look that different than the 2012 list.
Source: Stores.org Top 100 Retailers
This declining retailer health is directly impacting malls and shopping centers in the form of very high vacancy rates and sluggish rents—exactly what you’d expect to see where supply exceeds demand. Both factors deteriorated quickly during the economic crisis of 2008-09, but they’ve shown virtually no improvement since in spite of improved economic conditions. The recession was the catalyst, but competition from online retailers can only be the continued driver. The mall business isn’t very healthy either.
These trends are hitting the market capitalizations of most of the largest owners of retail real estate. Simon, General Growth, DDR and Kimco between them own over 600 MILLION square feet of U.S. retail real estate, according to nreionline. Simon’s stock has performed strongly, but the other three stocks have created virtually no value over the past decade.
Source: Yahoo! Finance
Most real estate professionals understand that profound changes are afoot. Don Wood, CEO of Federal Realty Investment Trust, says “there is too much retail supply in this country.” The Wall Street Journal reports “Green Street Advisor, an analysis firm that tracks REITs, has forecast that 10% of the roughly 1,000 large malls in the U.S. will fail within the next 10 years and be converted into something with far less retail. That’s a conservative estimate; many mall CEOs predict the attrition rate will be higher”. And Daniel Hurwitz, president and CEO of DDR, observes, “I don’t think we’re overbuilt, I think we’re under-demolished.”
I agree with the above perspectives, although I believe they likely understate the eventual impact on malls. A report from Co-Star observes that there are more than 200 malls with over 250,000 square feet that have vacancy rates of 35% or higher, a “clear marker for shopping center distress.” These malls are becoming ghost towns. They are not viable now and will only get less so as online continues to steal retail sales from brick-and-mortar stores. Continued bankruptcies among historic mall anchors will increase the pressure on these marginal malls, as will store closures from retailers working to optimize their business. Hundreds of malls will soon need to be repurposed or demolished. Strong malls will stay strong for a while, as retailers are willing to pay for traffic and customers from failed malls seek offline alternatives, but even they stand in the path of the shift of retail spending from offline to online.
This in turn creates further opportunity for online commerce. If I were thinking of starting a new retail brand right now, I would unquestionably start it online. And many very talented entrepreneurs are doing just this! I personally shop at Bonobos for pants, J.Hilburn for sweaters, Ledbury for shirts and Warby Parker for eyeglasses. All of these brands design and source their own goods. They historically would have started in the mall but they now are starting online, a trend that will undoubtedly continue. There clearly will be fewer new offline retailers to take the space vacated by the disappearing brick-and-mortar chains, further pressuring malls.
And in an ironic turn, many of these online brands are experimenting with offline stores—but typically with some important twists. Bonobos and Warby Parker have built showrooms in their New York offices where consumers can come in and try on samples. But if the consumer wants to purchase items, then the companies fulfill the product from their warehouses—they don’t stock inventory in their “stores”. Bonobos has expanded this concept into a few additional locations, but not mall locations. Instead, they are selecting lower cost, non-mall locations and using emails to their online customers to drive folks to these locations. They do this because a consumer’s purchasing typically expands after a visit to their physical store, and the costs are not high given the lack of inventory and lower rents and staffing costs. If this trend expands, it will provide further challenges to malls.
In researching this post, I came across a fascinating (and slightly morbid) website called deadmalls.com, a site that chronicles the tales of hundreds of already or soon-to-be dead malls. Co-founder Brian Florence writes, “I started deadmalls.com with my friend Peter Blackbird in 2000 when we both realized that Pete had mountains of data about dead and dying malls stuck up in his head. Why keep this information to yourself? And, realizing the burgeoning power of the Internet and its ability to draw in more information, the site was created to harness stories of woe and merriment from others. It’s been a great success.”
Unfortunately for mall owners, the content on deadmalls.com is about to expand substantially. There just are too many malls in America, and this will only get worse.
Stucky says:
What the hell is wrong with you people? This is a SOLVEABLE problem … just like the fiscal cliff.
The answer to having too many malls is simple; build more malls.
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8th January 2013 at 1:50 pm
Wyoming Mike says:
That’s right Stucky. There’s an article on Yahoo headlines touting the great Paul Krugman for Treasury Secretary. Apparently, he’s been right about everything.
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8th January 2013 at 2:06 pm
Eddie says:
I hate shopping malls and I’m glad to see them go, frankly. I only wiish their demise was heralding some kind of renaissance in local commerce. Unfortunately that’s a pipe dream.
Even grocery store sales are impacted by internet commerce. Does anybody besides me now find they have to go online to find certain condiments and not-so-perishable food items that used to be easy to find in local stores?
We’ve gone from Mom and Pop…to malls….to big box retail. Now we are increasingly going online. Question: What happens when the shipping becomes unaffordablle due to high fuel prices? Where will we shop then?
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8th January 2013 at 2:07 pm
sparrowhawk says:
The shipping issue is a real one for me already. I’ll pop over to TJ Maxx and get something nice for cheap and no shipping. Tax is cheaper here than shipping.
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8th January 2013 at 2:23 pm
AWD says:
The truth is this bald guy and a bumpkin from Arkansas killed the malls. R.I.P.
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8th January 2013 at 2:25 pm
Administrator says:
GREAT NEWS. THE TWO AREAS UNDER COMPLETE CONTROL OF THE FEDERAL GOV’T (STUDENT LOANS & AUTO LOANS – ALLY FINANCIAL) DOLED OUT $15.2 BILLION OF YOUR TAX DOLLARS TO THE DELUSIONAL SUBPRIME GM BUYERS & UNIVERSITY OF PHOENIX ENROLLEES. YOU WILL LOSE IT.
CREDIT CARD DEBT BARELY BUDGED AS PEOPLE CAN’T AFFORD THE PAYMENTS AT 19% INTEREST.
U.S. consumer credit jumps again in November
WASHINGTON (MarketWatch) – U.S. consumers boosted their debt in November by a seasonally adjusted $16.1 billion, marking the second straight sizable gain, according to Federal Reserve data. Consumer credit expanded at an annual rate of 7.0%, up from 6.2% in the prior month. In October, consumers racked up a slightly revised $14.0 billion in additional debt. Most of the increase in November came from non-revolving debt such as auto loans and student loans. Non-revolving debt jumped $15.2 billion. Credit-card debt grew by less than $1 billion in November, suggesting that Americans were cautious consumers in the first month of the holiday season. At the end of the month, consumer credit stood at $2.77 trillion, up 5.2% since the beginning of the year.
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8th January 2013 at 3:20 pm
Administrator says:
November Consumer Credit Soars, Driven By Student And Car Loans: 95% Of All 2012 Consumer Debt Funded By Uncle Sam
Submitted by Tyler Durden on 01/08/2013 15:17 -0500
SSDM: just like in October, and September, and August, and so on, November consumer credit saw a decent pick up of $16 billion, well above the expectation of $12.75 billion, above the $14.1 billion in October, and the third highest monthly print of 2012. And if this was driven even remotely by actual short-term consumption demand, it would likely be a good sign, as it would imply consumers have more faith in being able to repay their credit cards. Sadly, of the entire $16 billion jump, only $817 million, or 5%, was based on a jump in revolving credit. The real “growth” came as usual courtesy of Uncle Sam handouts, solely in the form of auto and student loans, which accounted for a whopping $15.2 billion of the increase in consumer debt, the second largest jump in the year, second only to the $18 billion in January. And as everyone knows, student loans are already on fast track to forgiveness (full forgiveness in 10 years if one works for the government), as will be the case for those NINJAs who buy GM cars using government loans. For all of 2012, a whopping $130 billion of the $137 billion total has been in the form of government handouts. In other words, nearly 1% of 2012 GDP has been funded by Uncle Sam in the form of (dischargeable) loans which everyone else will be responsible for, until nobody at all is responsible.
Expect non-revolving debt (i.e., student loans) to literally explode once it becomes better known that the Obama administration is preparing a wholesale debt forgiveness program as reported previously.
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8th January 2013 at 3:27 pm
IndenturedServant says:
I wonder how many of my fellow INTJ’s shopped at malls even during the good days? I can’t say that I never shop in a mall but over the last 20 years I’ve probably spent well under $1000. In the last ten years I patronized a frame shop in a mall based on some work they had done for a friend and I bought some ratcheting wrenches from Sears one day and returned them the next day after the one wrench I used from the set failed on first use.
I always found things cost more than I’m willing to pay in malls. It’s bad enough paying over the top mark ups for certain name brands (in many cases worth it) but I;ll be damned if I’m going to pay a premium for goods just because stores are conveniently grouped in one location.
I_S
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8th January 2013 at 3:30 pm
Llpoh says:
Maybe they can mint a bunch of platinum malls and all will be well.
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8th January 2013 at 4:20 pm
Administrator says:
How can retailers succeed if credit card debt is at 2005 levels, real wages are at 1970 levels, and employment of those between 25 and 54 are at 1997 levels?
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8th January 2013 at 4:52 pm
AWD says:
Admin,
It’s truly amazing how the government has gotten into the bankster’s racket of usury.
I don’t remember anyplace in the Constitution about the government being a money lender. But then debt=slavery, and the government wants to own us. There’s nothing in there about giving half your money to the government in taxes either.
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8th January 2013 at 5:27 pm
Hope@ZeroKelvin says:
Well, I will be sorry to see the malls go the way of the dodo.
There is nothing like strolling through these enormous climate controlled spaces, filled to the brim with goods from around the world, with the scent of a Cinnabon wafting through the air, with my pockets stuffed with cash, buying both necessities and fripperies, to feel like a freaking GOD.
It is the Space Age equivalent of the “gatherer” part of our ancient hunter-gather history.
You’re gonna miss these malls when they are gone. Your children’s children will wander through the burned out ruins of these malls filled with trash and winos, broke, poorly clad and fed, and not even be able to comprehend the incredible wealth and productivity and industry that these malls represented.
But hey! America will no longer be exceptional and all the wealth will have been redistributed and everybody will be EQUAL (LY miserable) and the goals of social justice will have been served.
Detroit here we come.
Hot debate. What do you think?
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8th January 2013 at 6:12 pm
Kill Bill says:
Now if only Wallmart would find a way for its shoppers to get their sugary pseudo food delivered, to the pajama wearing porker zombies that clog its aisles, via the internet and a UPS truck.
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8th January 2013 at 9:51 pm
Davos says:
Fuck the malls, my Dad lost his main street store to them in the early 1970s. Two generations.
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8th January 2013 at 10:35 pm
biggtmofo says:
http://www.deadmalls.com/
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8th January 2013 at 11:33 pm
John A says:
American prosperity (for the most part) has been a mirage for the past 40 years. All of us know this and we also know why. All things that are not economic eventually fail. This axiom applies to lemonade stands, shopping malls, steel mills, automakers, governments and empires.
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8th January 2013 at 11:50 pm
Makati1 says:
Malls? You mean those conglomerations of boxes selling unnecessary junk? Why, of course they are going to close and soon. I was back in Central PA in September. Still new malls under construction…lol. I just shook my head. I used to bid on them when I was an estimator five years ago and knew even then that they were dying. The grocery stores will shrink back to necessities from local suppliers/farms. Clothing will be basics to keep warm and dry, not look ‘fashionable’. The boutiques will move online for a while, until the cost to ship gets beyond the ability of their customers to afford. But eventually, the whole marketing system is going to collapse. Those buildings will collapse with it. Most are not built to last more than 20 years. They have plastic or tar roof covering. Oil based. To retrofit them for housing would cost more than new construction. Salvage of the steel will be practical for scavengers, but little else. If you are like me and about 70, you have seen the beginning and end of an era.
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8th January 2013 at 2:58 am
Chicago999444 says:
I’m not sorry to see these places fade, and only wish it could have been allowed to happen before every small town and city neighborhood “main street” retail district of local businesses was destroyed, and before so many of my suburban friends were blasted out of their houses by monster tax increases to pay for evermore of these ugly, soulless palaces of consumption.
There would never have been anything like 1000 large malls in this country were it not for municipal governments that have been engaged in a race to the bottom since 1970 to see who could throw the most tax-funded “gimmes” at mall developers and big box stores, in pursuit of something they refer to as “economic development”.
What, you might ask, is the use of “economic development” if you are throwing so much corporate welfare at the recipients that they are net tax recipients who get $1M in TIF money, tax abatements, and other gimmes for every low-wage retail worker they employ? What benefit is there for the town that finances this when they lose so much tax revenue thereby that they have to triple the property taxes of homeowners to pay for it? Where’s the gain when there are already so many shopping malls in the town, often right across the street from each other, that they are cannabalizing each other and the construction of a new one means a 65% vacancy rate at the one across the highway built 5 years ago? Go through the outer burbs of Chicago, and you see a Power Center 3 miles down the road from one built 4 years ago that will never be paid for and is standing vacant. The buildings are useless for any other purpose and are by and large hideous, a blight on the landscape.
A couple I know are out everything they own and divorced, thanks in no small part to the overbuilding of malls in the Village of Schaumburg on the taxpayer’s dime. When they bought their house 10 years ago, it was well within their means, and the property taxes were $2200. A year later, the taxes were $4400. Then, a couple of years later, $6600. Then, at last, $8800, at just the time the wife was laid off, a horrible hit to the household since her income was half the total income. They could have born the layoff if it weren’t for the confiscatory house taxes, which were to offset the loss of tax revenues as many among Schaumburg’s many redundant malls, financed with tax money, went vacant and defaulted.
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8th January 2013 at 7:23 am
Gene says:
There is a monster, open air mall in Collegeville PA called Providence Town Center. Bizarro to go walk\drive through it, as the majority of the back ‘streets’ are completely empty. Whenever we go there I’m always looking over my shoulder and checking for a zombie march.
The map shows how much of this place is empty. And BTW, Phase II has been ‘coming soon’ for years.
http://providencetowncenter.com/index.html
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8th January 2013 at 7:52 am
Administrator says:
Gene
We go to that mall because the Movie Tavern is there. I agree 100%. The street where the Movie Tavern is located has pretend stores with big colorful wood in the store fronts.
How can the developer not be bankrupt?
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8th January 2013 at 7:57 am
Gene says:
Admin,
MT is the reason we go as well. If you go through the REI store and head out their back door, that whole area you enter is every urban horror movie set I have ever seen.
But I guess ‘Phase II’ will fix it all:-)
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8th January 2013 at 8:03 am
Gene says:
Sorry, store is EMS not REI…not like there’s a difference.
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8th January 2013 at 8:05 am
AWD says:
When you buy on Amazon and Ebay, there are many “mom and pop” venders and small businesses offering their wares. I don’t think they deserve a bad rap.
Why don’ they just covert malls to housing for the FSA? Just put ‘em in there, wall off the building, and let them fend for themselves.
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8th January 2013 at 12:54 pm
ThePessimisticChemist says:
They completely remodeled my city’s mall, and added a lot of meeting areas/conference rooms. I guess the place is doing ok, because the remodel and slight retooling of rental charges stopped the outpouring of businesses.
Hell, its even a pretty decent place for people these days. For a while it was going to the trash but nowadays it SEEMS to be doing better.
The only problem seems to be that people are just hanging out. Few are actually buying. And while the rental slots are always FULL they experience a lot of turn over.
Its doomed to fail like all the others, it’ll just look good while doing it.
There’s a mall in KC thats downright scary to walk through. Gangs of teenagers walking around, boarded up rooms all over the place, and bums sleeping in the corners.
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8th January 2013 at 1:03 pm
Administrator says:
Department stores could go the way of the dodo
By Andria Cheng, MarketWatch
NEW YORK (MarketWatch) — With concerns that lower confidence and the expiration of payroll-tax cuts may curtail U.S. consumer spending this year, retail investors may be better off betting on global brands and curtailing exposure to department stores, an analyst said Wednesday.
“The expiration of the payroll-tax holiday is our main concern,” Macquarie analyst Liz Dunn said. “It’s very regressive and thus lower-end consumers will be hit harder.” She added that consumers have begun to save more in the fourth quarter amid declining confidence.
“We are cautious on U.S. consumer spending in 2013,” Dunn declared.
The analyst also said she doesn’t believe the recovery in the housing market will be enough in the near term to drive spending higher.
Dunn lowered her ratings on U.S.-based department-store chains Macy’s Inc. (NYSE:M) and J.C. Penney Co. (NYSE:JCP) to neutral from outperform, and downgraded their rival Kohl’s Corp. (NYSE:KSS) to underperform from neutral.
“Department stores are disadvantaged due to the focus on the domestic consumer, their relative maturity, the promotional models which they have propagated and the continuing pressure of share shifts to other channels,” the Macquarie analyst said. They “will once again be left to struggle to defend market share — this time from online.”
At the same time, Dunn upgraded Ralph Lauren Corp. (NYSE:RL) to outperform from neutral and continued to maintain her outperform ratings on global labels Coach Inc. (NYSE:COH) and Fossil Inc. (NASDAQ:FOSL)
“After a difficult year of slowing international trends, Europe appears to be stabilizing and China growth remains strong,” according to Dunn. “Many companies will also be facing currency tailwinds where there were headwinds before.”
The analyst singled out specialty-retail brands such as Francesca’s Holdings Corp. (NASDAQ:FRAN) , which she rates outperform, because of its unit-growth promise. Dunn said the chain is only about “40% built out” and is increasing square footage at more than 20% per year. Meanwhile, she upgraded Urban Outfitters Inc. (NASDAQ:URBN) to neutral from underperform; Dunn expects the company to report solid holiday sales and sees its lower inventory helping to reduce profit-eroding markdowns.
Moderate model ‘may be broken’
In another trouble spot for department stores, their growing online focus will likely “cannibalize” sales in stores, Dunn observed. The chains “don’t have the flexibility that specialty retailers have to close stores or pull back on store-growth plans to fully capitalize on the growth in e-commerce,” she said.
J.C. Penney’s Michael Fisher seeks to turn the 110-year-old chain into an affordable fashion and home-goods mecca. Midprice operators like J.C. Penney and Kohl’s are getting squeezed in the middle. “The moderate department-store model may be broken,” she added. Penney’s “efforts to revive the channel haven’t worked; Kohl’s has been left with little but price to drive business.”
While Penney’s major merchandising and pricing overhaul under Chief Executive Ron Johnson could eventually succeed, Dunn believes it may take a lot longer than expected.
For Penney, “trends will improve in 2013, but the company has dug a pretty deep hole in 2012 and sales increases are not expected to come anywhere close to the amount that has been lost.” Read: Time to warm up to Penney yet?
Penney shares fell 3.1% in afternoon trading.
As for Kohl’s, the company was hurt by heavy discounting after a disappointing holiday season, according to Dunn. “Too much inventory has damaged margins but too little inventory could hurt sales,” she said, adding that Kohl’s already had three negative earnings revisions last year.
While Macy’s has had a streak of outperformance, the analyst expects its same-store sales to slow this year after three years of gains.
Dunn also commented that she debated whether to “get more constructive” on Nordstrom Inc. (NYSE:JWN) stock. While she said that consensus estimates on the retailer were too high, Nordstrom may be shielded from concerns about how upscale shoppers could be affected as a result of higher income taxes. Shares of Nordstrom rose 1% Wednesday.
“Nordstrom’s core customer is in the sweet spot,” Dunn noted.
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8th January 2013 at 2:40 pm
Administrator says:
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8th January 2013 at 7:53 pm
llpoh says:
Kids are all one year older in ’12 than ’11 so need fewer toys. That explains it. right?
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8th January 2013 at 8:01 pm