Shopping malls expected to disappear as online stores take over sales

Shopping malls expected to disappear as online stores take over sales
As more people turn to online shopping, malls are closing across America. About 25 percent of malls are expected to close in the next five years. {Spencer Platt/Getty Images}

Retail giants Macy’s, J.C. Penney, and Sears are closing stores and taking with them a slice of Americana – shopping malls. An estimated 25 percent of malls are expected to disappear over the next five years, as online stores continue to gobble up sales. That means 300 of the nation’s 1,100 malls could disappear.

Why is this happening?

When anchor stores leave a shopping mall, it makes it more difficult for the rest of the stores to survive, experts say.

“When anchor stores close, it causes big problems for mall owners and other retailers in the mall,” Howard Davidowitz, chairman of New York-based retail consulting and investment banking firm Davidowitz & Associates, told CNN. “And I’d say this problem is only in its second inning.”

Part of the problem is that smaller retailers have “co-tenancy” agreements that allow them to break their lease or receive a reduction in rent when big stores leave. Anchor stores often drive foot traffic to other mall stores.

Retail woes were underscored by the recent sale of Westfield malls, a company known for its upscale shopping centers in large metropolitan areas. Westfield has malls in California, Connecticut, Washington, Illinois, New York, New Jersey, and Maryland.

Westfield was purchased for $15.7 billion by a French property investor, Unibail-Rodamco, according to CBS News. Under the deal, a new company will be created with 104 shopping centers in 13 countries, with an estimated 1.2 billion visits per year.

“The industry is under severe pressure from internet selling and particularly Amazon,” John Colley, a professor at Britain’s Warwick Business School, told the Los Angeles Times. “Clearly there are significant savings as the new enterprise will need only one head office, board, systems and functional management.”

Garrick Brown, vice president of retail research for Cushman & Wakefield, said some of the lower-  performing malls across the nation are in a “death spiral.”

Can malls survive?

If malls plan to survive, they might have to reinvent themselves.

“There will be a new push to get food halls and entertainment in malls, and make it more of an experience that will draw people in,” Brown told CNN.

A declining retail market contines to make that a challenge. In 2017, more than 300 retailers filed for bankruptcy, marking a 31 percent over last year, BankruptcyData.com reported.

“If that’s not an apocalypse then I don’t know what is,” Davidowitz told CNN.