Come hungry, stay late, and pay no attention to those “for rent” signs.
1. “We’re a dying breed.”
Not long ago, Zan Jones, 43, took a trip to a mall in her hometown, Plano, Tex., and came home slightly depressed. The mainstays were still there – Dillard’s, Sears, and a diner she’s known since her teenage years – but in between the familiar landmarks, she found empty storefronts, “For Rent” signs and sloppy temporary shops. “I felt kind of nostalgic,” says the marketing professional and mother of two. “It just used to be so great.”
It’s a common feeling. Shopping malls, once a hub of suburban commercial life, are rapidly losing ground to online shopping and off-mall locations. And it shows: vacancies at regional and super-regional malls topped 9% in the first quarter of 2011, up from 5.6% four years ago, according to market researcher Reis, Inc. “We’ve seen malls at the highest vacancy rates since we’ve been tracking them for the last 10 years,” says Ryan Severino, a senior economist for the firm. And more may be on the way, because of clauses in many leases that allow retailers to opt out if a mall can’t retain a major department store.
The empty store fronts make malls less appealing for consumers, and create a ripple effect, says Philip Martin, a real estate investment trust strategist for Morningstar. That’s only enhanced the power of online retailers: Online sales grew 12.6% last year to $176.2 billion and are expected to increase at a compound annual rate of 10% through 2015, according to Forrester Research. In contrast sales at all brick-and-mortar stores – in and out of malls – rose 3.7% in 2010 and are expected to grow 4% this year, according to the National Retail Federation. But that modest growth won’t save the mall, says Michael Niemira, vice president of research and chief economist for the International Council of Shopping Centers. Many large retailers are downsizing to smaller locations, now that they don’t need such large display floors or inventory space, he says: “Now ‘big box’ is a smaller box.”
2. “Thank goodness you’re hungry.”
More malls are investing in a tried-and-true tactic to get shoppers to stick around: feed them. The theory is simple, says Niemira. If people aren’t rushing home for lunch or can get a snack for a screaming child and stay in the mall, they’ll stick around longer. “And obviously the longer people stay the more likely they will spend money,” he says. In the interest of keeping shoppers in the building, some malls are renovating their food courts to bring in more local eateries, while others are opening new wings dedicated to high-end restaurants. Department stores are also dedicating more square footage to food by adding and expanding restaurants. Not long ago, the Filene’s Basement at the Stamford Town Center in Stamford, Conn. was torn down and replaced with seven restaurants, including a P.F. Chang’s China Bistro, California Pizza Kitchen and The Capital Grille, says Bill Taubman, chief operating officer of Taubman Centers, which owns the mall. “We absolutely think that it’s helped the shopping center both in terms of the number shoppers as well as the quality,” says Taubman. Arun Sharma, a marketing professor for the University of Miami School of Business Administration says the strategy is being duplicated at other malls.
There’s another reason malls are devoting more space and money to their food courts. Shoppers spend almost 20% more at a mall with a “good food court,” according to a 2007 survey cited by Sharma. And good, medium or otherwise, shoppers overall are spending more money on food at the mall, according to the International Council of Shopping Center. Food courts brought in $792 per square foot in 2010, up 5% from the year before; restaurants brought in $459 per square foot, up 4% from 2009.
3. “Mall? More like an amusement park.”
Tweens eager to catch a glimpse of Disney star Selena Gomez can shell out up to $120 for concert tickets – or they can save their cash and head to the mall. As malls turn to celebrity appearances, on-site health screenings, fashion shows and more, the Simon Property Group, the biggest mall developer in the U.S., has added the 18-year-old Gomez to its roster for a series of question-and-answer sessions. The result: an audience of 3,000 to 6,000 people per event, says Simon spokesman Les Morris, some of whom undoubtedly stick around to buy clothes, accessories and hot pretzels. The effect, consumer psychologist Kit Yarrow says, “is kind of like Santa on steroids.”
With consumers finding easier ways to get their stuff, shopping malls have become less about shopping and more about entertainment. Malls are adding skating rinks, amusement parks, movie theaters and museums to draw people in. The Mall of America is the classic example, but in 2010, a group of car enthusiasts added an auto museum to the Pavillions at Talking Stick shopping center in Scottsdale, Ariz., and a 26,000-square foot aquarium opened in another Arizona mall. “Most shopping mall operators have realized they can’t sit back and just be landlords,” says Paco Underhill, author of “Call of the Mall.” “They have to be place makers.” The extra activities can translate into extra revenue, at least according to a survey by the National University of Singapore. There, people who went to a movie theater in a shopping center spent between $99 and $130 a month at the mall, 10% to 45% more than those who skipped the flicks.
4. “Our gift cards also take.”
Mall-wide gift cards seem so appealing. Why tell a recipient where he or she should shop? Instead, with one card, he could choose a kitchen gadget at one store or a golf shirt at another – or both! But in spite of new federal rules designed to rein in various fees and limits, mall-wide gift cards often come with strings and conditions that aren’t present in cards issued by individual stores, says Daniel Horne, a marketing professor for Providence College who tracks the gift card industry. Monthly inactivity fees may kick in for cards issued by major mall chains –which typically carry a Visa or a MasterCard logo — if they haven’t been used for a year, says Horne. And cards issued by local malls may come with additional restrictions on where those cards can be used, says Kwame Kuadey, chief executive of Giftcarderscue.com, a website where people buy and sell gift cards. Sometimes, the cards cannot be used at particular stores. Visa said in a statement that its gift cards are issued by various financial institutions that are free to assess fees and that it offers additional protections against card theft and fraud. MasterCard did not respond to requests for comment.
Shoppers should also be skeptical of promotional gift cards given to them by shopping malls as part of promotion because they aren’t subject to the new rules, says Kuadey. Those promotional gift cards can come with tight expiration dates, unlike traditional cards purchased by consumers, which cannot expire for at least five years. Malls are offering more of these gift cards to consumers who spend a certain amount as a way to encourage shopping but they may not apply to certain products, says Horne. The cards can come in handy for planned purchases, but don’t let the deadlines lead to impulse buys, he warns.
5. “We’re following your every move.”
With apps and technology to serve up deals to customers the minute they step through the doors, malls are firmly embracing the smart phone crowd. Shoppers can download an app like Shopkick, which offers gift cards and certificates to consumers who “check in” at different stores. But the location-based program (and others like it) may feel a little creepy, says Ryan Goff, social media director for MGH Inc., a full-service marketing agency based in Baltimore. In order for the program to communicate with a shopper’s cell phone, the mall has to install tiny transmitters at entrances and participating stores, so the program knows when a customer enters the mall or walks into a particular store, according to Shopkick. Still other malls are using Bluetooth technology to send alerts to consumers’ smartphones as soon as they enter the mall and while they move throughout the mall, informing them about special events or sales at stores they’re approaching, Goff says.
And while some shoppers are happy with the deals, others aren’t comfortable with sharing their every move, says Goff. Shopkick tracks the number of shoppers who use the app, where they go, and what they do, according to a company spokeswoman, then reports the aggregate data to the mall and the stores. She also says the firm does not give out data on individual users, and that consumers must have their app open for data to be collected.
6. “We’re identical — and you love it.”
It’s common to hear shoppers complain about the sameness of malls – the same stores, the same restaurants, the same piped-in tunes and inoffensive retail smell. But in fact, there’s little research to suggest this cookie-cutter approach is anything but lucrative. Malls thrive on a simple mix of core tenants, most commonly women’s clothing stores, shoe stores, cosmetic shops and jewelry stores, according to an Urban Land Institute report from 2008, the latest year for which data is available. Or, as John Williams, founder of Chicago-based retail consultancy J.C .Williams Group, puts it: “There are basic stores the mall has got to have.” For more basic malls, that includes a Gap, Aldo Shoes, Banana Republic and Express; at upscale shopping centers, expect retailers like Neiman Marcus, Prada, Gucci and Macy’s, says Taubman.
Since the recession, some malls have found themselves taking on tenants that would have been practically unheard of 10 years ago, including supermarkets, government agency offices, and universities. And it’s quite possible that a satellite college campus at one mall or an Asian supermarket at another will do just fine. They’re just unlikely to be the main drivers of traffic.
7. “A tax break? Yes, please.”
Even as malls struggle, cities and towns are working hard to attract major retailers and prop up flagging malls – often with generous tax breaks or subsidies. For instance, when it seemed likely that the local West Valley Mall would go out of business, city officials in Tracy, Calif. decided last year to pay the mall developer $2.4 million to help cover the costs of Macy’s moving in, according to Tracy city manager Leon Churchill. This is common, says Daniel Howard, a professor of marketing in the Cox School of Business for Southern Methodist University. “Cities compete with one another for businesses,” he says. On the table are perks like local tax breaks and subsidies, a fire-sale price for government property, and discounts that stretch into the future.
General Growth Properties, which owns the West Valley Mall, declined to comment, but Churchill says the city wins in the long-term, with increased sales tax revenue. The presence of Macy’s has already increased interest of other retailers in the mall, he says. Higher mall vacancies lead to emptier pockets for local governments, which typically depend on sales taxes as a main source of revenue. Sales tax revenues accounted for 23% of all state and local tax collected in 2008, according to the Census Bureau. But that spigot of cash flow is thinning. City sales tax collections declined by 5% in 2010 and by 6.6% in 2009, compared to 2007 when they grew by 3% from the year before.
8. “Are your feet tired? Good.”
Shopping malls are designed to make you walk from one end to the other – maybe multiple times– before you’re ready to go, analysts say. That’s why major department stores, such as Sears, Bloomingdales and JCPenney, are strategically placed on opposite ends of the mall, says Howard. For decades, mall planners have also spread out similar stores, such as those aimed at children and those aimed at teenagers, to force people to cross the property before they can finish their trips, says Yarrow. “The more goods you pass by on the way to get what you really came for, the more you’re likely to buy,” says Howard.
And department stores, which analysts say are still the biggest draw for consumers, have a lot of control on where the rest of the stores are placed, says Maureen Boyer, an architect with Gensler, a global design and architecture firm. Department stores can normally dictate in their leases the kinds of retailers that surround them, down to the specific brands they want to neighbor, she says. “The department stores have a lot of power,” says Boyer. Some malls are changing their ways and remodeling to group together similar stores to accommodate time-strapped consumers, says Yarrow. But don’t expect the mall hike to get shorter any time soon. Many malls have to wait five to 10 years for leases to expire before they can even consider grouping similar stores together, says Howard.
9. “Size matters.”
The size of the mall fully impacts your experience, including the stores and services you’ll find, how much time you’ll spend there, and how much money you’ll pay. A 2006 study by the National University of Singapore found that larger shopping centers do a better job of keeping shoppers in the building. Consumers spent an average 2 hours at larger shopping malls, compared to 1.4 hours for smaller centers, according to the survey.
And while you may be more prone to spend more time at a larger shopping mall, you’re less likely to find a good deal than you would outside of the mall. “On average, prices are 12% higher at a shopping mall,” says Howard, adding that retailers have higher overhead costs in malls, such as maintenance and higher rent, which they pass on to consumers. The typical regional shopping mall charges between $50 to $100 per square foot for rent, while a smaller shopping center or strip mall might charge and average of $25 per square foot, says Williams.
10. “You’re a target.”
When it comes to security, American shopping malls are about the polar opposite of the airport: Anyone can walk in, anyone can walk out, and most don’t have a way to lock down the building in case of emergencies, says Joe Bell, a spokesman for Cafaro Company, a shopping mall developer. And most aren’t interested in getting any more secure, according to a 2006 study by the nonprofit Rand Corporation which identified malls as an “attractive target” for a terrorist attack. Shopping malls raised red flags along with auditoriums, because they attract a lot of people in a relatively small space, according to the report.
But mall owners are hesitant to bring on strenuous security measures because they know consumers can find more convenient ways to get the same merchandise and services, the study found. And the fact that malls can as easily be found in sleepy suburbs and large cities, also makes it difficult to prioritize security efforts, the report found. “It’s kind of the elephant in the room,” says Bell. “There is no secret to the fact that shopping malls have been regarded as soft targets.” In fact, some malls have started to do preventative drills with law enforcement agencies as a preliminary step toward preparedness, he says.