Episode 6

The changing face of malls

The rise, fall and future.

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“I think consumers are driving the push to include more experiential co-tenants. Mall owners are noticing that, more than ever, consumers need more to make the choice to shop in a mall or enter a mall than just retail.”

Sarah Cafaro, Senior Director Capital Markets Group, Avison Young

"Consumers need more to make the choice to shop in a mall"

In this episode

Host Mariam Sobh discusses the past, present, and potential future of our shopping centers with Avison Young’s Sarah Cafaro, and Columbia University’s Mark Cohen.

What is the future of shopping malls? Since their creation in the mid-1950s, they have had many lives -- from concert venues for pop stars in the 1980s to schools and medical facilities in the 21st century. However, as our world continues to evolve, so have our relationships with one of the biggest physical spaces where the desires of the consumer and retailer collide in a symphony of commerce. As every aspect of life enters a new reality, it’s time to re-examine our relationships with the shopping mall, and what it means for our communities, our local economies, and the future of retail.

Highlights

  • 9:55 Sarah Cafaro shares the pre-COVID mall trend that has only grown more popular in the past two years.
  • 19:47 Mark Cohen discusses what draws people into malls and what deters them.
  • 23:11 Mark Cohen explores future trends in the shopping mall sector.

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Speaker 1 [00:03] Have you noticed more or less activity at shopping malls since COVID?

Speaker 2 [00:08] Less activity, I would see 50% less.

Speaker 3 [00:12] I think that last year, it was definitely a lot crazier because I think people felt like they had to overcompensate for Christmas gifts. And this past Black Friday was a lot quieter than I'm used to working retail. Yeah, so I think it's– this year is a lot quieter than last year.

Speaker 4 [00:27] Actually more because of the– what I think it was, I thought it was because of the stimulus checks. Everybody got money. Right? So I'd say more so.

Speaker 5 [00:37] Well, at first it was less, but now people are coming back in droves. I think people are just tired of being cooped up and they're over it. And I think it's had a lot– a really bad effect on people in general.

Speaker 6 [00:51] I think more as well. There's more definitely more people.

Speaker 7 [00:54] More because people are back into the motions of going through their regular lives.

Mariam Sobh [01:00] Welcome to Changing Places, brought to you by Avison Young. In Changing Places, we explore our continuing and complex relationships with the built world around us. I'm your host Mariam Sobh. Mallrats, Clueless, Paul Blart Mall Cop. The shopping mall has been a staple of Western culture and daily life since the 1950s. While the structure itself may not change, the stores inside of them all certainly do, as do the tastes of the people inside of the mall who are deciding where to spend their hard-earned cash. I'm guessing we've all hung out at a mall at some point or run into by a last-minute gift, spent the day there perhaps to take advantage of an experiential attraction. Whatever the reason, the shopping mall is an integral part of not only daily life, but a large contributor to their local communities. Since the pandemic, outdoor malls have seen an increased amount of foot traffic while indoor malls have struggled to retain their shops and customers. In 2020, CNBC predicted that 25% of U.S. malls would close in five years. At the same time, adaptive reuse of malls has been a hot topic. In Idaho, the Alturas Preparatory Academy established their charter school in a former Sears store. The Netflix series Stranger Things rented a shopping mall as set in the series. However, outdoor malls, like the Grove, and high end malls, like the Ball Harbor Shops, are thriving. We're going to tackle all things shopping malls this episode with my guests Sarah Cafaro, who's Senior Director of Retail Sales at US Capital Markets at Avison Young, and Mark Cohen, Director of Retail Studies at Columbia University. I really can't wait to get their opinions, thoughts, and insights on the current challenges in the shopping mall sector, how COVID has changed their uses, and what the future looks like going forward for this venerable part of the retail sector. We'll begin at The Grove in Los Angeles.

Speaker 6 [03:01] I think they do. Places like these are still fun to come to. They're always fun to come to.

Speaker 8 [03:06] Yeah, I think the same because it's more outdoors.

Speaker 7 [03:10] No, this is this is good old school stuff, you know. This is good human interaction, beautiful sights, and stuff like that.

Speaker 6 [03:19] The shops, this one in particular, it's nice, it's pretty, it's outdoors, close to home.

Speaker 7 [03:25] I actually don't shop at malls to be perfectly honest with you. But whenever I go out with like, like with my nieces and nephews, it's always a fun thing. And and they're, and they're all in their teens, and they're like, oh, wow, you know what, this is better than going online. Of course, it is.

Mariam Sobh [03:47] Sarah Cafaro, welcome to Changing Places. Sarah, I'd like to get your point of view on shopping malls. Over the past decade, they've had to contend with online retail, COVID, the supply chain, and pretty much everything else we can imagine. So, can you tell us what you've seen and currently see in the sector?

Sarah Cafaro [04:05] Sure. Thanks, Mariam. So the message is regardless of what you read in the news, retail is not dead. Shopping centers and malls are for suburban residents a huge part of their day to day shopping experience still. And because there are certain items that you don't typically buy online, like large electronics, furniture, etc., there are certain tenants who actually not only survived the pandemic financially, but they also surpassed their 2018 sales during what was an extremely challenging time for retail as a whole, I think we can all agree. The mall experience, however, as you mentioned, has changed dramatically over the last 10 years independently of COVID. COVID certainly didn't help shopping malls. Co-tenancy within merchandising plans remains an extremely important aspect of a consumer’s brick-and-mortar shopping experience. So we will often still see certain brands pair together, such as Apple and Lululemon, or all of the what we would call QSR, or quick service restaurants grouped together in a food court. So this really flows through to every aspect of shoppers experience, including an online site as a complement to the in-person shopping experience at its brick-and-mortar locations, as well as actual physical accessibility, which is why we now see so many of these open air shopping centers and malls, there are enclosed malls that are achieving higher average sales per square foot that we believe will continue to hold a strong position in the market. But on the whole, most mall owners are looking to reposition their assets in some way, even if it just means attracting more of those experiential co tenants.

Speaker 9 [05:42] I think that in order to meet the standards of what customers expect, shopping malls are going to have to get fancier and fancier and cater mostly to wealthier clientele or people who think that they're wealthier, and that shopping malls in more rural areas will go obsolete.

Mariam Sobh [06:02] Are you seeing that this is something that fits into what people want from their malls these days? Or are these decisions being made separately from what consumers are interested in?

Sarah Cafaro [06:13] Yes, I think consumers are driving the push to include more experiential co-tenants. Mall owners are noticing that, more than ever, consumers need more to make the choice to shop in a mall or enter a mall than just retail. All of the products that people use, for the most part that are not day-to-day grocery perishable items, do need to or can be purchased online. And so mall owners are required more than ever, I think to offer something new to consumers for sure.

Mariam Sobh [06:50] We've been hearing about malls being used for everything from charter schools to film sets, even medical centers, how is the retail sector handling that shift?

Sarah Cafaro [06:57] For those of us who grew up spending Saturday afternoons at the mall, maybe going shopping and going to the cinema, I think it's hard to imagine that there’s students then attending school in something like a repurpose Sears space. For example, if the developer could build a live-work-play scenario. Kingston Collection is an example of a mall that has been redeveloped into an eat-shop-play concept. And then Trammell Crow Residential is developing the apartments in the old Sears spot there. So we're seeing these redevelopments occur across the country, and owners and tenants are learning to adapt.

Mariam Sobh [07:38] When you mentioned malls and Saturday mornings and the nostalgia there, I was thinking about how my own reflections on going to the mall and I kind of miss that feeling. And I'm just like, are malls ever going to go back to that?

Sarah Cafaro [07:49] So I think we've definitely seen a shift away from the traditional model. Other malls that tend to have those really high sales per square foot, like the King of Prussia Mall in Pennsylvania, the Short Hills Mall in New Jersey or the Grove in Los Angeles, we really do believe that these types of malls have staying power, given their– not only their commitment to quality, but also their diversity of offerings to consumers.

Speaker 1 [08:18] Do you think that malls like this one has a place in today's world? Or would you rather shop online?

Speaker 2 [08:23] I wanted to shop here in a place like this. Online is good, but sometimes you just really wanted to step out and mingle with people and just touch the goods, you know, and feel the real life.

Speaker 4 [08:37] Eventually it won't. If this, if the second stream of this COVID climbs, nah. They will not have any more, I don't think. They might have more, but it's going to decline.

Speaker 10 [08:49] In fact, I do do a lot of shopping online, but I'd prefer to come to a mall. But I've been staying away because of COVID. But a mall like this I would come to for sure. And I love I love this mall.

Speaker 1 [09:04] What are some of the things that keep you coming back to the mall?

Speaker 2 [09:07] The open space, the open air, the restaurants, and there's some activity for kids.

Speaker 4 [09:17] It's kind of just the environment of walking around and it's an outdoor mall, so it's pretty refreshing.

Speaker 11 [09:23] Get some fresh air.

Speaker 4 [09:25] Christmas shopping, just the vibe. You know when you Christmas shop? You're out looking at all the decorations. And besides the holiday time though, yeah,

Speaker 10 [09:32] If I lived here, I would be coming for the shopping and the restaurants. And just the ambience. It’s really cool.

Mariam Sobh [09:42] You've mentioned that some of the design changes with outdoor open air types of malls are becoming more popular. Do you think that is due to COVID? Or was it already making that shift?

Sarah Cafaro [09:55] So we saw that consumers were weary to enter into any kind of enclosed space with masses of people. But we actually saw the trend emerge before COVID. You can't just offer consumers the same merchandising plan that, you know, requires that they pass certain stores on the way to their destination. Now, I think that there's a general, I don't want to say impatience, but there's a need for more immediate gratification in terms of getting to your destination quicker. So overall, the plans are going to be more flexible, there's more access points, and I think as new construction continues, we're seeing a trend toward more open air new development than enclosed, for sure.

Speaker 11 [10:50] Yeah, probably because it's a nice mall to walk around. It's outside.

Speaker 4 [10:50] We’ve never been to outdoor mall, either. I'm sure there's more but we never been to an outdoor mall, so.

Speaker 1 [11:00] How do you like this compared to indoor malls

Speaker 4 [11:02] Better. Way better.

Speaker 1 [11:03] Why is it way better?

Speaker 4 [11:04] Because we can bring him along to one. It’s animal friendly, more likely. And also like the mall, it gets– especially wearing a mask, it gets all–

Speaker 11 [11:13] It gets stuffy.

Speaker 4 [11:14] It gets stuffy in there, man.

Mariam Sobh [11:15] When it comes to the enclosed spaces, as we mentioned earlier some of these spaces are making a shift to do other things, what is the process like for that, Sarah? Can you just switch them all into some other entity or are there sort of some, some hoops you got to go through?

Sarah Cafaro [11:28] Yeah, definitely the latter. So your covenants restrictions and yo,ur real estate agreements to determine what you are allowed to build there. Is it, you know, if you're converting a retail anchor, do you convert it into a, another retail use that is basically staying within the existing footprint of that anchor? Or can you build whatever you want, sky's the limit? Could you build multi-family? It all depends on whether it's in those agreements. Overall, I would say, the one benefit of a mall conversion, in terms of the ease or the conversion based on the surround area is that they are usually centered in commercial districts with a good amount of traffic. We do need to take into consideration traffic.

Mariam Sobh [12:22] Have big box stores at all caused any issues for malls, in terms of, you know, we say a lot of people are shopping online? But what about big box stores where you can go into a Walmart, for example, and get groceries, you can get pharmacy stuff, you can get clothing?

Sarah Cafaro [12:36] So you know, if I'm an owner and of either a mall or a large shopping center, outlet center, typically speaking, what we see is that these are attractors. And more often than not, they create synergy for the other retailers because if you're driving in and, you know, you have your Target list of items that you're going to buy, that will bring more traffic to the other stores.

Mariam Sobh [13:04] Well, as we get ready to wrap up here, are there any trends you're seeing now that we should know about?

Sarah Cafaro [13:09] Yes, there are a lot of different trends we've seen during the pandemic and even prior to that that we're seeing continuing into the future. First, I would say on the positive side, there's a lot of opportunity for redevelopment of malls, outlets, and shopping centers. Redevelopment can be especially important in areas where construction costs and timelines have increased dramatically, such as the Northeast. And that's when new construction is stalled. Medical or urgent care offers another viable replacement for existing mall retail. Another trend we've seen is that mall anchors, such as JC Penney, who have declined over time or are going through restructuring are likely to continue to be sold near term as owners and bondholders and mall anchor product face continued pressure to sell based on provisions in their bankruptcy filing. There are many ways that we can help brands to evaluate a location’s performance. And more than ever, tenants are paying attention to store performance at each individual location and market. But overall, I would say we just continue to see the changing of spaces. There's just a lot of change going on in the industry. But it's all very exciting. And there's tons of opportunity going forward.

Sarah Cafaro [14:27] Well, thank you so much, Sarah. It's been a pleasure to have you on our program.

Speaker 3 [14:32] Well, I work here. That's it. I'm not here for the atmosphere.

Mariam Sobh [14:39] When was the last time you went to a mall? Were you there to meet friends? Buy a new outfit? Play laser tag? Or did you drive by the mall in your area to find it abandoned or turned into a medical center? I think it's safe to say that this sector is evolving past what we thought it was and beyond what we thought it could be. Stay tuned for the next part. And just a reminder, Changing Places is a podcast brought to you by Avison Young that continues to explore and question our complex relationship with the built world around us. I'm your host, Miriam Sobh. I hope you're liking the show so far. If so, please share us with your friends. We are about to meet Mark Cohen, Director of Retail Studies at Columbia University. Mark is an expert in the retail space, having served as the Chairman CEO of Sears Canada Incorporated, Chief Marketing Officer and President of Soft Lines of Sears, Roebuck, and Company, Chairman and CEO of Bradley's Incorporated, and Chairman CEO of Lazarus Department Stores. Well, Mark, welcome to Changing Places. So Mark, the shopping mall sector seems to have experienced its fair share of ups and downs. What are your thoughts on the way things have had to adapt due to the pandemic, but also to the rapid changes in the way consumers have turned to e-commerce versus a physical shopping mall?

Mark Cohen [15:54] The change that we're witnessing today was well underway pre-COVID, whereas the shopping mall had disrupted downtown retailing and hundreds of US cities in the '60s, '70s, and '80s. Now it's the internet's turn to disrupt the great American shopping mall. And that was a trend that was well established and had been gaining tremendous amount of momentum pre-COVID. The very best malls, which were doing okay pretty COVID, are now doing fine. The original malls typically had two or three anchors, these, these mega-malls have four, five, and six. Think about what a customer encounters when they approach a mall and they see a parking field that's completely barren because the mall that used to– the department store that used to face that parking field is locked up, it's closed. And so that was the portal into the mall. And so the mall, whether it's actually out of business or struggling to stay in business, certainly looks like it's out of business. But at the end of the day, moving climbing walls and more restaurants and doctor's offices into a shopping center space doesn't promote shopping. Let's spend an hour on the climbing wall and then let's go buy a sweater. Doesn't, doesn't cut.

Mariam Sobh [17:08] Well, that's interesting. I would have thought the opposite, that once somebody gets you in the door, it's hard to not buy something.

Mark Cohen [17:33] Well, the the raison d'etre for a shopping mall is getting you in the door and then offering you an enormous array of choices. But when the choices are incongruous – climbing wall, shoe store– the likelihood that customers will behave as they used to behave is greatly diminished. And I would also point out that the mall used to be the community center for young people who would gather at the food court in the evenings or on weekends.

Mariam Sobh [17:40] Well, when it comes to malls, and over a thousand malls in the US alone, what separates a top tier mall from a zombie mall? I know you mentioned Apple Store, Lululemons, those types of more high end retailers. If a place doesn't have a high end retailer or these sort of places that attract younger crowds, is it even a mall anymore?

Mark Cohen [17:58] I think that the best malls– well, they're not going away, they'll be sought out, they'll be busy, they will be a destination for customers who want to try, touch, feel, experience, don't want to participate exclusively in commerce via the internet. But I think we're looking at an era in this 21st century where customers want to have it all their way. They want to shop, they want to browse at home, and then go somewhere and check it out. Or they want to check it out in some physical space, and then go home and decide what, if anything, they want to buy from the privacy and comfort of their own home or their office, for example.

Mariam Sobh [18:34] Yeah, no, I hear what you're saying there. And there's a– but there's also this element of the physical that you mentioned earlier. And, and I just saw a study today that showed sales are better when you can actually see something being demonstrated or touch it or feel it. So, do you think that malls are not going to go away anytime soon?

Mark Cohen [18:53] Well, the most successful malls are multiple anchors– four, five, six anchors. So when an anchor tenant goes away, they don't look like an empty restaurant. So the survivors are in the right place at the right time with the right mix. And it isn't just the Apple Store and Lululemon. It's the, it's the sum total of what's inside the box that convinces people that that's where they want to head when they do want to shop physically.

Speaker 4 [19:21] Well, I needed a journal recently so I went to moleskin. And I could have ordered that on Amazon. But the thing is, I wanted to see the quality of the material and things like that. And so that kind of way allows for me to actually see the quality of the goods I'm buying.

Mariam Sobh [19:36] Are there any things that malls can do to attract more customers to the sort of a physical experience aside from having some of these stores or being the best of the best?

Mark Cohen [19:47] Well, you need an enormous array of things to draw a customer on a regular basis. People like to go with there are lots of people like them who shopping in an environment that makes them feel like they're going to be successful. So there's a lot of things to look at. There's a lot of convenience available. There's access, and there's safety. The B and C malls stopped replacing the lighting in their parking fields as their business waned pre-COVID. The parking lots didn't get re-striped promptly as they had in the past. The potholes weren't re-paved. The apparent security, which is more and more of an issue today, wasn't as evident as it may have been, or it certainly should be. And so it's a 'don't go there' zone of sorts, as opposed to the star on the map that's got everything going for it and that's lively and exciting and clean and neat and friendly and safe and secure.

Mariam Sobh [20:45] But I did notice some malls, for example, will use their parking lots and they'll have like a circus or some entertainment venue come there for like the weekend. Is that a way for them to make up for the revenue that they might be losing?

Mark Cohen [20:58] Well, putting some sort of an event into a parking lot that would otherwise be empty signals that the mall is still in business. The problem is, if you hit a circus in a mall parking lot, does that mean you're going to enter the mall to go shopping? You know, it's a bit of a leap of faith. The mall destroyed the downtown retail core of hundreds of US cities in the mid to latter 20th century. And now e-commerce is doing that to the mall, aided and abetted by the presence of covid.

Mariam Sobh [21:29] So it sounds like what the malls did to downtown, now they're suffering the same consequences.

Mark Cohen [21:35] Exactly. It's a sort of a loop. It’s a cycle of creation and destruction. 25 years ago, nobody had a phone, let alone now there are more phones than people, more smartphones than people. And pretty soon, augmented reality is going to further turbocharge the shopping experience, which is pretty one-dimensional, which is one-dimensional right now, but won't stay that way.

Mariam Sobh [21:58] It's interesting, the augmented reality. I've been wondering now with all this Metaverse talk and people building things in virtual worlds, is that going to be the new communal gathering for malls? Or do you think in a town, if there's one mall left, and people have this memory of this is where they go to congregate, if that'll still survive?

Mark Cohen [22:14] Well, it may very well in some way, shape, or form. But recognize that though the 3D technology is certainly available, the interface is not particularly attractive. The offerings will become more and more inviting and exciting. It will never supplant a human being going to a space to touch and feel and physically try something, which is why e-commerce is not going to wipe out physical retail, although it has done so in some categories where there is no physicality that customers find value in.

Speaker 4 [22:50] I think there's something about the human community that needs to have a sense of atmosphere of other people. So yeah, I do think I would shop in person at times because it's also the experience of being around other people.

Mariam Sobh [23:20] Well, let's talk about the trends real quick before we wrap up here. Are there any things that you're seeing in the shopping mall sector as we look forward to the future?

Mark Cohen [23:11] Frankly, you know, hold on to the existing anchors and hope that they remain viable, anchors like Nordstrom, for example. Bring new anchors in that can occupy large spaces. At the end of the day, it's not about climbing walls and, or Soul Cycle facilities or more food. Yeah, all of that is beneficial and helpful. But the critical mass that was the shopping mall has to still be there for customers to see that as a destination.

Mariam Sobh [23:39] Well, thank you so much, Mark.

Speaker 1 [23:41] Would you be upset if this mall closed down?

Speaker 2 [23:44] Yes.

Speaker 1 [23:45] Why is that?

Speaker 2 [23:46] We come here every night, almost every night, just, you know, walk around, take some fresh air, get ice cream, to go to the playground. So, we love it very much. We would be very upset.

Speaker 3 [23:58] If that's happening, it would put a lot of people out of work. There's so many people who work here, which would be tragic, but I would be upset for the loss of jobs for the amount of people who work here.

Speaker 10 [24:08] Absolutely.

Speaker 1 [24:09] Why is that?

Speaker 10 [24:11] I don't think we need more office buildings and and warehouses. I think that a place like this is a place for people to be out and be seen and have some community and just enjoy the outdoors and the beautiful surroundings here at this mall. I like this mall.

Speaker 6 [24:29] Oh yeah. Yes, I would. That would not be cool. Yeah, it just it just wouldn't be sad. This is like a nice place to come to daytime at nighttime, to eat, to shop. I brought my kids here since they were babies. So yeah.

Speaker 1 [24:44] Would you be sad if it closed?

Speaker 8 [24:45] Yeah.

Speaker 1 [24:46] Why?

Speaker 8 [24:47] Cause it's fun to like shop and eat here. And it's, like, more outside than other stores.

Speaker 7 [24:54] This is, this is a real thing, this market right here. You know, a farmers market, bars, restaurant and stuff like that. And this is this is really nice. I mean, if people saw this, how it looks at night, all lit up, you know, and then just walk through, you know, you feel, you know, like, like you're a millionaire yourself. So, it's really nice.

Mariam Sobh [25:18] I'd like to thank Sarah Cafaro and Mark Cohen for taking the time to guide us through the evolving present and untold future of shopping malls. As many of us head to the mall, Main Street, or your one stop online retailer, I'm sure we're going to look at things a little differently, perhaps. Join us next time as we head to the ports to see, well, if any of the gifts you're anticipating to give this year will be in the stores on time or sitting on a cargo ship off the coast of British Columbia or California. I'm Mariam Sobh, and this is Changing Places, brought to you by Avison Young. Thanks for listening. See places changing and evolving in your neighborhood? Share your evolving spaces with us on social media using the hashtag #changingplacespodcast. I'm Mariam Sobh, and this is Changing Places. Changing Places is brought to you by Avison Young. Our producer is Andrew Pemberton, Fowler. Our sound engineer is Patrick Emile. Our production assistant is Gabriella Mrozowski. Additional production support is provided by JAR Audio.

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