This year proved that the mall is far from dead. Now 2023 could determine which malls come out on top.
In November, the largest U.S. mall owner, Simon Property Group, reported that momentum in sales at its malls across the country has persisted, with shoppers remaining “resilient.” Occupancy at Simon’s U.S. malls and premium outlets was at 94.5% as of Sept. 30, 2022, compared to 92.8% at the same time last year. And the company said it is on track to achieve pre-COVID occupancy in 2023.
“The flight towards bricks and mortar is real,” chairman, president and CEO of Simon Property Group David Simon said on a call with analysts, adding that new store openings or lease renewals with different retailers has not slowed down.
Despite grim predictions from before the pandemic, malls have now weathered a global pandemic, widespread retail shutdowns and massive growth in e-commerce. However, certain changes are already underway as shopping centers adapt to the new demands and shopping styles of consumers.
“People continue to really want to go out and experience being in an environment to see, touch and try product,” explained Keith Jelinek, a senior managing director at consulting and advisory firm Ankura. As was the case in 2022, shoppers still expect an entertainment-driven and holistic social experience when they come to a mall.
This shift is evident in recent data pertaining to mall visits. Foot traffic analytics firm Placer.ai found that while visits to malls were down in November and October this year, compared to 2021, the median visit duration for indoor malls increased 6% between October and November, suggesting a higher value on longer, more- comprehensive mall visits.
To cater to this desired holistic shopping experience, mall owners are broadening their leasing to include different types of tenants that, until recently, have not typically lived in malls.
“You go to the malls now and it’s not unusual to see a medical and dental office or co-working spaces or a gym or motor vehicles locations,” Jelinek said.
And within traditional department stores, like Macy’s, JCPenney and Kohl’s, which have traditionally served as foot-traffic anchors in major shopping centers, evolution is essential as well. After a year of relatively few store closures, department store closures are likely to outpace the industry average in 2023, according to a recent note from UBS analyst Jay Sole. Between Q4 of 2019 and Q1 of 2021, the store count of department stores dropped 33%, Sole noted.
Macy’s in 2020 outlined a plan to close 125 stores in lower-tier malls by 2023. And in June, Morningstar analysts identified 10 Kohl’s properties that are set to expire before fiscal year 2023. As these retailers narrow in on top-tier locations, many are also opting for shop-in-shop experiences — such as Sephora’s partnership with Kohl’s — to cater to a broader base of consumers. Kohl’s plans to open 850 Sephora shop-in-shops by 2023.
Malls and lower-tier shopping centers that fail to adapt will likely need to consider converting real estate into something more profitable, which could lead to fewer lower-grade malls across the U.S. overall. This would widen the gap between higher-tiered malls — known as Class A malls — from the lower-tier B and C malls.
According to a report from real estate brokerage firm CBRE, 10 million square feet of retail space has already been removed from the market in the last five years, a trend that will likely persist in 2023 as struggling malls covert their properties into work spaces, residential units or e-commerce fulfillment centers.
“[The Class A malls] will continue to do well,” Jelinek said. “I think we’ll see some of those [struggling malls] completely convert and go away.”