Shopping Malls – Relics of the Past?

July 16, 2020


The first shopping center in the U.S. opened in Edina, Minnesota in 1956 and since then the number of shopping centers has swelled to over 100,000. However, these retail behemoths were hit with a double whammy in the past ten years, the Great Recession in 2009 and the rise of e-commerce, both of which has resulted in mall closures.

Shopping malls are struggling to adapt to changing consumer preferences. Analysts at Coresight Research forecasts that 25% of America’s malls will disappear within the next three to five years. But, depending on the pace of individual retail bankruptcies, this expectation could rise to 50%.

The COVID-19 pandemic has exacerbated the situation by accelerating bankruptcies. Shopping mall favorite retailers such as J.C. Penney have either declared bankruptcy, requested rent relief or have simply closed up.

While many shopping malls were in the process of reinventing themselves prior to COVID-19, now, they face an even more questionable future and will have to be even more creative in their reinvention strategies.

If You Can’t Beat Them, Join Them

E-commerce growth has skyrocketed during the pandemic and it looks to continue growth by double-digits. U.S. shopping malls could take a lesson from of its Asian counterparts by going online as well. These virtual malls are connected to the physical malls and offer coupons and other promotions to encourage consumers to shop both formats.

Another strategy that seems to be gathering interest is turning shopping malls into fulfillment centers. Expectations of next day and same day delivery are becoming norms so locating inventory closer to the customer is necessary. From a real estate perspective, shopping malls could provide the answer to address delivery expectations.

Indeed, commercial real estate firm, JLL, has noted that retailers will need an additional one billion square feet of industrial real estate by 2025 as the need for warehouse space grows along with online sales. This estimate may be a conservative one. Prologis, a developer of logistics real estate estimates e-commerce retailers requires 1.2 million square feet of distribution space for each $1 billion in sales, which means e-commerce requires three times the space as traditional through-put distribution.

The Shift to E-Commerce

The bleeding will continue for shopping malls’ tenants. As many of these retailers invest more in their e-commerce offerings, it is coming at a price that many can not afford. RSR Research estimates that typical online orders cost retailers roughly 10-15% more than purchases in stores, where shoppers do the work of selecting items and transporting them home.

The Outlook

As its tenants struggle, the shopping malls continue to look for relevancy in today’s new retail environment. Are they merely a relic of retail’s past or could they transform virtually, as fulfillment facilities or perhaps as mixed-use locations where consumers live, work and purchase locally? Like many other businesses of today, shopping malls are having to rethink and reinvent their business proposition quickly before it’s too late.

 


ABOUT SPEND MANAGEMENT EXPERTS

Spend Management Experts provides strategic guidance to optimize your supply chain. Using cost modeling technology and market intelligence, we help companies with their transportation, distribution and fulfillment spend. Often large shippers can reduce their spend across the supply chain by 20% or more. We specialize in reducing distribution costs, increasing efficiencies, dynamic reporting, greater budgeting and forecasting accuracy and optimizing supply chain execution. We leverage our proprietary models to identify savings and build negotiation strategies based on data and business cases. As industry experts, our fresh approach provides clients with straightforward details on exactly how savings are derived. Spend Management Experts is your competitive edge, delivered.

Connect with Spend Management Experts on TwitterLinkedIn, and the Spend Management Experts blog.

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Shopping Malls – Relics of the Past?

July 16, 2020


The first shopping center in the U.S. opened in Edina, Minnesota in 1956 and since then the number of shopping centers has swelled to over 100,000. However, these retail behemoths were hit with a double whammy in the past ten years, the Great Recession in 2009 and the rise of e-commerce, both of which has resulted in mall closures. Shopping malls are struggling to adapt to changing consumer preferences. Analysts at Coresight Research forecasts that 25% of America’s malls will disappear within the next three to five years. But, depending on the pace of individual retail bankruptcies, this expectation could rise to 50%. The COVID-19 pandemic has exacerbated the situation by accelerating bankruptcies. Shopping mall favorite retailers such as J.C. Penney have either declared bankruptcy, requested rent relief or have simply closed up. While many shopping malls were in the process of reinventing themselves prior to COVID-19, now, they face an even more questionable future and will have to be even more creative in their reinvention strategies.

If You Can’t Beat Them, Join Them

E-commerce growth has skyrocketed during the pandemic and it looks to continue growth by double-digits. U.S. shopping malls could take a lesson from of its Asian counterparts by going online as well. These virtual malls are connected to the physical malls and offer coupons and other promotions to encourage consumers to shop both formats. Another strategy that seems to be gathering interest is turning shopping malls into fulfillment centers. Expectations of next day and same day delivery are becoming norms so locating inventory closer to the customer is necessary. From a real estate perspective, shopping malls could provide the answer to address delivery expectations. Indeed, commercial real estate firm, JLL, has noted that retailers will need an additional one billion square feet of industrial real estate by 2025 as the need for warehouse space grows along with online sales. This estimate may be a conservative one. Prologis, a developer of logistics real estate estimates e-commerce retailers requires 1.2 million square feet of distribution space for each $1 billion in sales, which means e-commerce requires three times the space as traditional through-put distribution.

The Shift to E-Commerce

The bleeding will continue for shopping malls’ tenants. As many of these retailers invest more in their e-commerce offerings, it is coming at a price that many can not afford. RSR Research estimates that typical online orders cost retailers roughly 10-15% more than purchases in stores, where shoppers do the work of selecting items and transporting them home.

The Outlook

As its tenants struggle, the shopping malls continue to look for relevancy in today’s new retail environment. Are they merely a relic of retail’s past or could they transform virtually, as fulfillment facilities or perhaps as mixed-use locations where consumers live, work and purchase locally? Like many other businesses of today, shopping malls are having to rethink and reinvent their business proposition quickly before it’s too late.  

ABOUT SPEND MANAGEMENT EXPERTS

Spend Management Experts provides strategic guidance to optimize your supply chain. Using cost modeling technology and market intelligence, we help companies with their transportation, distribution and fulfillment spend. Often large shippers can reduce their spend across the supply chain by 20% or more. We specialize in reducing distribution costs, increasing efficiencies, dynamic reporting, greater budgeting and forecasting accuracy and optimizing supply chain execution. We leverage our proprietary models to identify savings and build negotiation strategies based on data and business cases. As industry experts, our fresh approach provides clients with straightforward details on exactly how savings are derived. Spend Management Experts is your competitive edge, delivered. Connect with Spend Management Experts on TwitterLinkedIn, and the Spend Management Experts blog.

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