May 23, 2016
By Yuki Noguchi
Many of the department stores that once anchored bustling shopping malls continue to close. Macy's will shutter 36 additional stores this year; 78 Kmart and Sears locations will also close. What to do with that vast, vacant space?
There is no traffic, and no problem finding parking at Owings Mills Mall in Maryland. The 5,000 or so parking spaces are all vacant. A J.C. Penney closed last month and a Macy's closed last year.
When it opened in 1986, it was anchored by a Saks Fifth Avenue and catered to well-to-do Baltimore suburbanites.
The mall's owner, Kimco Realty, is planning a multimillion-dollar revamp. Like many malls that are trying to re-attract customers, it will include a movie theater and restaurants. But it will not include a department store.
Jan Rogers Kniffen, a retail consultant familiar with the Owings Mills project, says the developers are hoping outdoor shopping without department stores will pay off.
"They're trying to make it more interesting and more experiential, and so they're turning it inside out and making it open-air. Whether that will be a solution or not, I don't know," he says.
For many in Generation X, the suburban mall was their social epicenter. Kniffen says mall rats are no more.
"The culture is dead. [They] were the last generation that went and hung out at the mall," he says.
People shop where they socialize — and that's increasingly online. In less than 15 years, Kniffen expects half of sales will be Web-based, which will hit department stores especially hard.
Decades ago, department stores were so valued, developers gave them the land underneath their stores.
"If you were building one today, you wouldn't give that deal to an anchor, because they're not a good enough attraction," Kniffen says.
In fact, the most troubled stores like Sears are selling off their best real estate to survive. And more closures are expected.
Real estate research firm Green Street Advisors ranks the 1,100 malls in the U.S. by grade. Those with the richest demographics, brands and highest foot traffic get As. A third of the country's malls rank C+ or lower, and Green Street says many department stores in those locations will very likely have to close.
Higher-rated malls have Apple stores, and luxury and specialty apparel brands like Bonobos or Warby Parker that use their stores as showrooms. There is also a lot of emphasis on "experiential" retail — sit-down restaurants, gyms, movie theaters — because that's where people are spending money.
Kniffen, the consultant, says in other cases, malls are adding offices and residences. "Mixed use, people think, is the savior, right? If you can get people to live at the mall, you have an immediate clientele for your restaurants," he says.
But some malls simply don't have the demographics to draw desirable retail or residential tenants. Some of those are converting into doctors' offices, churches, and even for-profit prisons.
A handful of others are identifying new niche uses for malls that veer from the mainstream.
The Legaspi Co. purchases old malls and turns them into retail centers targeted at the Hispanic community. The company owns three and has developed a dozen others.
"We're selling ambience; we're selling an environment," company President Jose de Jesus Legaspi says.
The malls host regular concerts, mariachi band classes, and holiday festivities. Where there are vacant department stores, local entrepreneurs open stalls and kiosks, as a kind of retail incubator. The effect is like an international bazaar where the community comes to hang out.
"They'll come in right after Mass, for example, and they'll stay until 6, 7, 8 o'clock at night," Legaspi says.
And, of course, they spend. The malls' revenue spiked 20 percent after Legaspi made the changes. Even the sales at the department stores that remain in his malls have increased, too, because they can target their products and marketing to a specific community.
"Bringing Hispanic-oriented retailers helps as what I call an aggregate anchor for the other national retailers," Legaspi says.
Legaspi's malls target areas with dense Hispanic populations. But, he says, malls that target other populations could work elsewhere, too.