A Brief Overview of Malls

Any retail expansion strategy in the US must include malls. Although luxury and high-end retailers often thrive in high-street locations, Class A malls are still essential for their physical store growth strategies. Not every market has the population density to support a robust street retail district, making top-tier malls a practical and strategic choice. This article will provide an overview of the mall industry in the US.

Brief Mall History

Since the 1950s, malls have played a vital role in American life. Unlike Europe, where main streets in most cities serve as traditional retail centers, American cities generally have lower urban densities, and consumers often associate shopping with malls.

Southdale Center in Edina, MN, is the first enclosed mall in the U.S., designed by Austrian architect Victor Gruen and opened in 1956. His goal was to improve the post-war suburban landscapes, which he described as "avenues of horror … flanked by the greatest collection of vulgarity — billboards, motels, gas stations, shanties, car lots, miscellaneous industrial equipment, hot dog stands, wayside stores — ever collected by mankind.”

Ultimately, his groundbreaking design of a two-level structure connected by opposing escalators, with several dozen stores arranged around a shared courtyard and shielded from the weather by a roof, set the standard for many malls. However, he envisioned his malls as centers of life with museums and libraries and was ultimately disappointed that they became centers of consumerism.

Southdale Center (prior to 2012 renovation)

State of the Market in the past decade

Over the past ten years, malls have certainly faced fluctuations.

Around 2017, with the growth of e-commerce companies and the decline of traditional anchor stores like Sears, JCPenney, Lord & Taylor, and Barney's, the term "Retail Apocalypse" became widely used, and for good reasons. For example, in the third quarter of 2018, the vacancy rate for super regional and regional malls rose to 9.1%, marking a seven-year high.

Moreover, the pandemic led to a surge in e-commerce services and heightened concerns that shopping centers might become completely irrelevant. In fact, in 2020, the average asking rent hit its lowest point while vacancy rates increased.

Overall Vacancy & Asking Rent for Shopping Centers (source: C&W)

Nonetheless, the graph above indicates that eventually, asking rents rebounded and the vacancy rate fell. Coresight Research reports that in 2022, more stores opened than closed, marking the first occurrence of this trend since 2016.

Current State of Malls

Nonetheless, some malls continue to struggle while others are prospering.

For example, class A malls recovered more swiftly after the pandemic and still experience relatively strong rent growth and lower vacancy rates compared to class B and C malls.

Several key factors have contributed to this trend:

• An increasing number of DTC brands are seeking physical stores as online marketing and customer acquisition costs rise

• Malls are becoming more experiential. Previously, about 70% of mall retailers were apparel-focused, but now that figure is closer to 30%. More entertainment venues, such as pickleball courts, trampoline parks, and gyms, are appearing in malls

Since the pandemic, malls have increasingly included experiential tenants to attract Gen Z, who value experiences and socializing in mall settings. Additionally, some mall owners are adding apartments and offices, turning malls into comprehensive lifestyle centers. Ironically, this evolution aligns some malls more closely with Gruen's original vision for them.

The number of active malls in the U.S. has decreased from 2,500 in the 1980s to about 700 today.

As of 2018, the U.S. had the highest retail square footage per person globally, with 23.5 square feet per individual, largely reflecting the extensive presence of malls in the country.

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However, not every mall is successful and they come in different flavors. While some of them are doomed to fail others are the key to a successful retail strategy.

Malls Categories

Based on their size malls are classified differently:

Super-Regional Malls

Regional Mall

Community Shopping Center

Few important metrics in malls are:

a) Sales/SF

b) Occupancy Rate

c) Tenant Mix

d) Amenities and Physical Conditions

Performance by mall types:

Additionally, in the US, malls are commonly assigned letters A, B or C to rank them. A malls are the best performing ones and B and C mall are not performing as well.

The 3 Mall Grades (source: RockStep Capital)

Class A malls represent around 35% of the malls in the US

Class B mall represented around 35% of the malls in the US

Class C malls represent around 30% of the malls in the US

Mall Sales/SF and Occupancy Performance by Class (source: Green St Advisors)

Top Mall Owners

The high-end malls are concentrated in the hands of few owners:

Simon Property Group

• Around 230 malls

• ~171M of Gross Leasable Area

  
  

Brookfield Properties

• Around 130 malls

• ~134M of Gross Leasable Area

CBL Properties

• Around 89 malls/shopping centers

• ~54M of Gross Leasable Area

Macerich

• Around 45 malls/shopping centers

• ~45M of Gross Leasable Area

For brands seeking expansion in the United States, a fundamental comprehension of the mall ecosystem is crucial. This knowledge will enable them to make well-informed strategic decisions regarding their brick-and-mortar development.