Desolate Malls And Empty Parking Lots—The Reality Of American Retail In 2017
Over construction and poor planning has resulted in an epidemic of bankruptcies and closings for major U.S. retailers.
If you live outside a major U.S. city, your days of shopping at the mall could be over sooner than you thought. That is the word coming from major commercial landlords. Bankruptcies are dotting the retail landscape like half submerged rooftops after a superstorm. Retailers can’t keep afloat and the real estate they once owned has sunk in value. Amazon can’t take all the blame. Chronic overbuilding has resulted in deserted malls with empty parking lots throughout middle America.
“There’s about a billion square feet of retail space that needs to go away, that needs to be converted, for the market to get healthy,” CoStar director of retail research Suzanne Mulvee said at Bisnow’s National Retail Series event in Manhattan this week.
“If you accept the premise that the pain in the market is about oversupply and not all about e-commerce, I think it creates optimism, and it starts to make all these closures make sense,” she said. “JC Penney owns a lot of stores where nobody lives. So these stores should close, and they will continue to close.”
It’s not just JC Penney. Major retailers such as Macy’s, Sears and Payless are decimating their store numbers nationwide with only major population centers likely to survive the blood letting. That means much of America will be left in baron retail wilderness. Mall stores like Aeropostale, which filed for bankruptcy in May, American Eagle, Chicos, Finish Line, Men’s Wearhouse, and The Children’s Place are also in the midst of multi-year plans to close stores. Other retailers are looking to downsize existing locations.
“As leases come up, you’re going to see a gradual rotation into smaller-footprint stores,” said RJ Hottovy, a consumer equity strategist for Morningstar.
An October report from Morningstar states that the U.S. has 23.5 square feet of retail space per person, compared with 16.4 square feet in Canada and 11.1 square feet in Australia—the next two countries with the highest retail space per capita
“Across retail overall the U.S. has too much space and too many shops,” said Neil Saunders, CEO of the retail consulting firm Conlumino. “As shopping patterns have changed, some of those shops are also in the wrong place and are of the wrong size or configuration.”
Once a major retailer like a Sears or Macy’s leaves a mall the knock on effect for other stores can be dramatic. The Morningstar report supports another recent analysis from Credit Suisse that said about 200 shopping malls are at risk of shutting down if Sears continues to close stores.
National REITs (Real Estate Investment Trusts) like Kimco and RPAI have either sold or are trying to sell all of their properties outside of the 25 most populous metropolitan regions while others try to shrink their footprint.
“There are massive areas that should be razed,” Olshan Properties CEO Andrea Olshan said. “I don’t think there’s the political will to deal with that. As a country we have a massive amount of excess space, and we don’t know how to get rid of it or repurpose it.”
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