The new ghost town: Your local mall
The recession and the pull-back in consumer spending is turning malls into ghost towns, according to The Wall Street Journal.
In the 12 months ended March 31, U.S. malls collectively posted a 6.5 percent decline in tenants' same store sales, according to Green Street Advisors, a real estate research firm, The Journal reports. The data includes a 7.3 percent decrease in sales at Simon Property Group (SPG), the operator of the largest number of mall locations.
Retail sector analysts closely monitor the same store sales metric because it excludes first year/grand opening sales in an outlet's first 12 months, some of which can be attributed to customer curiosity.
'Dead malls' abound
Per square foot sales also reveal a mall sector under stress. The U.S. per square foot average is $381, according to Green Street data, and any mall averaging less than $250 per square foot is in danger of failure, The Journal reported. Using that methodology, 84 malls in Green Street's 1,032-mall database are 'dead malls', up from just 40 dead malls in 2006, prior to the recession's start.
Another sign of mall operator urgency: events at malls. Mall Event Planner Nancy Walters estimates that events at shopping centers have increased 20 percent this year, The Chicago Tribune reported. "When business is good, shopping centers tend to pull back their events," said Walters, president of San Diego-based Very Special Events. "When they need to draw more traffic, then they start up again."
Economist Peter Dawson, who argues that structural, technological, and cyclical factors are altering the U.S. economy so much that we've entered a 'frugal consumer' era, not simply a typical recession dip, said the downward shift in consumption is national, pervasive, and is not likely to end with the economic recovery. New York City's retail environment offers another illustrative example.
A shrewd Times Square makeover
Dawson said the city recently closed a portion of Times Square (on Broadway between 47th and 42nd Streets) to vehicle traffic, in a long-planned effort to create more pedestrian-friendly space in Midtown Manhattan. Once unthinkable, the idea "quickly gained momentum as the recession hit and retail sales started to sag." The stated concept is to create 'leisurely, park-like space' in an urban zone, "but the unstated goal is to get people, lots and lots of people, to browse, stroll, promenade, and to shop," Dawson said. "That tells me that even in a tourist mecca, Times Square, commerce officials are undertaking extraordinary efforts like stopping traffic from entering Times Square, because they're concerned that not enough shoppers will show up. And that tells you that the pullback in consumer spending is huge and will not change any time soon."
Economic Analysis: If Green Street Advisors and economist Dawson research are correct, it looks like the U.S. will have many empty malls in the years ahead. Now, one might think that some of these malls could be reconfigured into corporate office space. The problem with that tactic is that there's already a glut of corporate office space nationally. So it's going to take a great deal of creativity on the part of private mall operators and public officials to reinvent these mall ghost towns and find productive uses for these vast spaces.