While companies like Penney and Macy’s are struggling, a new breed of big-box retailers, like Ross and TJ Maxx, are thriving, and mall owners are finding new, unconventional uses for the cavernous spaces formerly occupied by traditional mall anchors.
The news on the retail sector in the last year has been largely filled with gloomy headlines about big retailers shuttering their shops. J.C. Penney is closing the doors at 39 under-performing locations. Macy’s is closing 14 stores and Sears is shutting down an estimated 235 locations, a 13 percent reduction in store count according to JLL research.
But despite what some pundits are saying, the big-box mall store is not dead yet. Instead, we’re seeing a changing of the guard. While companies like Penney and Macy’s are struggling, a new breed of big-box retailers, like Ross and TJ Maxx, are thriving, according to Rahul Sehgal, Chief Investment Officer for Inland Private Capital Corporation. And mall owners are finding new, unconventional uses for the cavernous spaces formerly occupied by traditional mall anchors.
“If you’re not shopper-centric, you’re not going to last.”
Kimli Cross – JLL’s Director of Retail Leasing
“Twenty years ago, putting a fitness facility, a church, grocery store or even a Target-like retailer in a mall would have been a non-starter,” says David Schonberger, a founding partner at mall owner Radiant Partners. “But today, we’ve realized that each one of those unconventional tenants brings in new populations to the mall and helps fuel an experience for our shoppers.”
And statistics show that people are spending more than ever at retail. According to JLL’s research, Millennials spend an average $170 billion per year and by 2018, that number is expected to climb to $3.4 trillion—higher than any other generation. At the same time, the Baby Boomers have plenty of disposable income to spend on things like beauty products and new sweaters. The group has nearly doubled the net worth of their similarly-aged predecessors.
Even among traditional mall-anchor retailers, the store closings are more of a right-sizing than a crisis. According to JLL’s data, the number of stores closing represent fractions of each company’s overall footprint. J.C. Penney is shuttering 3.5 percent of stores while Macy’s is closing just 1.6 percent of its 840 locations.
“Closures happen every year, it’s part of the retail lifecycle. When one store closes it present an opportunity for another retailer to establish a new location,” says Jesse Tron, Communications Director at the International Council of Shopping Centers. “And in the second and third quarter we expect to hear about retailers opening new locations.”
According to ICSC data, 44 percent of store closings happen in the first quarter and then the closings tapper down drastically. ICSC anticipates store closings in 2015 to be on par with the average during the past five years.
With the financial crisis and recession finally in the rear-view mirror, retailers are reinvesting in existing spaces and shifting dollars to their increasingly important e-commerce platforms, according to Kimli Cross, JLL’s Director of Retail Leasing. Retailers want to be sure they are everywhere that shoppers want to spend money.
“If you’re not shopper-centric, you’re not going to last,” says Cross, a 20-year mall-leasing veteran.
At the stores that are staying open, retailers are more motivated to work in close partnership with their landlords to help brick-and-mortar stores succeed.