The Omaha World-Herald reported on Feb. 1 that the health of four Omaha area malls was described as in serious condition, fair to serious condition, dire condition and critical condition, but new life is anticipated. The Imperial Mall in Hastings is closed and our Conestoga Mall in Grand Island has lost three anchor tenants and is in need of new life.

What caused this to happen?

Observers of the American retail industry say multiple reasons go into the success of one large mall or shopping center and the wilting of others. The United States has far more retail stores per capita than many other countries, so the industry is competitive. A 2016 report by credit rating agency DBRS Morningstar said the U.S. had 23.5 square feet of retail space per person, compared with Nos. 2 and 3 — Canada with 16.4 square feet and Australia with 11.1 square feet.

Closure of many large stores such as Sears and Younkers, the rise of online shopping, the power of customer perception and the failure to modernize are factors in the decline of some malls and large shopping centers. Some retail chains took beatings when they were purchased by private equity firms or investment managers before the recession of 2008. Then those chains were saddled with too much debt, leading to closures and bankruptcies.

What needs to change?

Back in 2017 Credit Suisse predicted that as many as 25% of the nation’s 1,169 malls, or some 275, would close by 2022. It raised a lot of eyebrows at the time, but not that much alarm since 2022 seemed a long way out and people figured a lot could change by then. At about the same time, Green Street Advisors conducted an analysis of 950 malls that identified the 300 most at-risk malls.

Commenting on the results that found over two-thirds of the malls studied suffered a decrease in the number of national tenants, they wrote: “While the sector trend is certainly negative, the malls experiencing outsized national tenant vacancies are more likely to experience rapid deterioration or need significant capital investment.” Sadly, malls have rapidly deteriorated since then. In 2019 store closings reached historic highs, with some 9,200 major retailer stores shuttered, following 5,437 closed in 2018. Many of those vacancies are mall anchors, which have historically been flagships that draw traffic to malls. Sears, long a fixture in the nation’s 1,169 malls, has shrunk from 863 stores in 2000 to some 540 today, nearly 40% of its fleet. J.C Penney has dropped from 1,075 in 2002 to 864 in 2019 and filed for bankruptcy this year.

These trends are setting up a crippling downward spiral. As malls lose not just their anchor tenants but in-line tenants, too, existing malls give people fewer and fewer reasons to shop there. The result is that Class C and D malls get even weaker, with the potential of more Class B malls slipping into the C and D category. Even the Class A malls are struggling to attract new tenants. Luxury mall mainstays such as Nordstrom, Saks and Neiman Marcus have been opening more off-price stores while selectively shutting down their full-priced nameplates. Malls have not kept pace with the changing expectations of consumers of their differing needs in an omnichannel world where shopping, like going to the mall, has been disintermediated from buying, thanks to the ease of ordering just about anything anytime online. More retailers are leaning into this shift and in 2020 they are picking up the pace of investment in digital transformation, putting malls that depend on foot traffic in an even tougher spot. It will have a snowball effect.

People today are looking for convenience. If they go to a store, they want to shop quickly, get what they want and get out. Strip centers and big-boxes fill the bill. People don’t want to spend their Saturday afternoons walking around the mall. This is crippling malls.

To keep malls a destination where people will want to go, they have been adding attractions to their offerings. Since everybody’s got to eat, malls have been keen on adding restaurant experiences. In 2006, the typical mall devoted only about 10% of its square footage to food, beverage and entertainment, according to Cushman & Wakefield. Since then, however, the typical mall devotes about 15% to dining experiences, but the best class A malls make food and dining an even higher priority, allocating restaurants as much as 25% of space.

That investment pays off, according to research from International Council of Shopping Centers. Some 40% of shoppers say they choose a mall destination based upon the dining options found there. Further, dining guests spend more when they visit, with spending rising as much as 25% when customers spend time enjoying quality food and beverage offerings. Just adding restaurants and recreational attractions to the mall doesn’t solve another problem: how to convert visitors to consumers. To succeed in the future, the industry needs to think like the customers it serves. In other words, the malls must do more.

Raymond O’Connor is a developer in Grand Island. O’Connor Enterprises is at 2502A N. Webb Road. This is the first of two columns. See the second, “Transforming Malls into community centers,” in Monday’s Independent.

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