Mall World, Isn’t It

Is bricks and mortar retail a dying business? Aside from big stuff you need now, ‘cause you’re in the middle of a do-it-yourself home improvement project, “ooooh it better fit me perfectly and I need to see it in the mirror” (isn’t there an app for that?) or “I really need to touch the vegetables before I buy them,’ who shops in retail stores, without online price comparison, these days? And like, who still goes to the local mall to shop?

“In January, Rick Caruso, the C.E.O. of Caruso Affiliated, one of the largest privately held American real-estate companies, stood on a stage at the Javits Center, in New York, and forecast the demise of the traditional mall. ‘Within ten to fifteen years, the typical U.S. mall, unless it is completely reinvented, will be a historical anachronism—a sixty-year aberration that no longer meets the public’s needs, the retailers’ needs, or the community’s needs,’ he told his audience, which had gathered for the National Retail Federation’s annual convention…

“Part of what’s hurting the mall, obviously, is that, increasingly, people are shopping online. Internet sales reached six per cent of total retail spending in the fourth quarter of 2013, nearly doubling their share from 2006. Some retailers, understandably, are responding by focusing more on the online end of the retail business. Gap, which became synonymous with the American mall, is no longer counting on malls for growth. ‘Culturally, the business pivoted towards digital,’ Glenn Murphy, the C.E.O., said, describing the past year. ‘Mall traffic, for a number of years, has been slowing down. Whether it continues to decline somewhat over time, I think that’s realistic to assume.’ Gap customers now can order clothes online and pick them up in a store. When it opens new stores this year, Gap will focus on Asia; earlier this month, the company launched its Old Navy brand in China.

“It’s not hard to imagine the future that Caruso described, in which malls are obsolete: the case for Amazon is pretty strong when the alternative is to crawl through gridlock to a mall, unwittingly park in the space farthest from the store you plan to visit, cringe as toddlers’ shrieks reverberate off the tile floors, and dodge salesmen hawking knockoff perfumes and hundred-dollar curling irons.” NewYorker.com, March 11th.  What’s making it even worse is the demise of the suburbs, where so many of these mall-monoliths were built.

The great recession, the fall of subprime mortgage-supported tract housing, foreclosures hitting the suburbs worse than centrally located urban living, high unemployment and under-employment,  a contracting middle class, the soaring price of gasoline (making the suburban commute unaffordable) and an overall reduction in buying generally have severely undermined retail across America. “Within 15 to 20 years, retail consultant Howard Davidowitz expects as many as half of America's shopping malls to fail. He predicts that only upscale shopping centers with anchors like Saks Fifth Avenue and Neiman Marcus will survive.

“‘Middle-level stores in middle-level malls are going to be extinct because they don't make sense,’ said Davidowitz, chairman of Davidowitz & Associates, Inc., a retail consulting and investment banking firm. ‘That's why we haven't built a major enclosed mall since 2006.’ BusinessInsider.com, January 31st.

 But it’s not just the malls alone. Big publicly-traded retailers are having an equally difficult time: “[This year, retailers] reported mostly disappointing earnings, reflecting a poor year’s start under prolonged inclement weather; the strains of stagnant incomes, especially among lower- and middle-income consumers; and a sagging consumer electronics market… But Sears Holdings, owner of Sears and Kmart stores, was once again the bleakest of the lackluster reports. It announced that it would close at least 80 stores this year, a downsizing move it has made in previous years without significant results…

“And the company posted a loss of $402 million in its first fiscal quarter, significantly worse than its loss of $279 million a year earlier. Revenue fell 6.8 percent. ‘We are watching the slow liquidation of Sears Holdings,’ said Brian Sozzi, chief executive of Belus Capital Advisors.

“‘Sears, despite massive real estate sales in Canada, closing a significant number of underperforming stores, a spinoff and $500 million dividend from its best division, and significant inventory reductions, managed to end the quarter with a weaker balance sheet than a year ago,”’ Gary Balter, an analyst at Credit Suisse, wrote in a note to investors.

“Sears has been trying to transform its traditional retail business to a store that focuses on selling products to members, and the membership is growing. Members of its Shop Your Way rewards program accounted for 74 percent of eligible sales at Sears and Kmart stores in the first quarter. But many analysts doubt the program’s worth, as it essentially gives discounts — and margin — away for nothing.

“‘Other than Groucho Marx, who famously would not join a club that would accept him, why wouldn’t someone join a free club that offers discounts?’ Mr. Balter wrote. ‘Shop Your Way is not Amazon Prime, where one pays to belong.’

“The retailer said that it had closed, or was in the process of closing, about 80 Sears and Kmart stores this year, and that it might close more locations before the year ends. This comes in addition to about 100 stores it closed in 2012. At the end of the first quarter, the company had about 1,900 Sears and Kmart locations, excluding its stores in Canada.” New York Times, May 22nd. Too many Sears stores are located in the suburbs, and the suburbs are new face of American economic pain.

“[W]hile many cities have been benefiting from an influx of wealth, the suburbs have been suffering a rise in poverty. From 2000 to 2010, the number of poor in the suburbs or the nation’s largest metro areas grew by 53 percent to a record 15.3 million. And while poverty has increased in cities as well, the growth rate in the number of poor living in the suburbs was more than twice that in cities during the decade—and the suburbs are now home to the largest and fastest-growing poor population in the country.  This  isn’t just the Great Recession at work; as early as 2005, the suburban poor outnumbered  their city counterparts by almost a million. ‘We think of poverty as a really urban phenomenon or an ultra-rural phenomenon. It’s increasingly a suburban issue,’ says Elizabeth Kneebone, Brookings fellow and coauthor of a recent Brookings book on the topic, ‘Confronting Suburban Poverty in America.’

The reasons for this shift are many. During the growth years of the 1990s and 2000s, low-skill construction and service jobs boomed in the suburbs. Soon immigrants began bypassing cities and immigrating directly to the suburbs and exurbs. But these low-skill jobs were the first to vaporize in the housing bust and ensuing recession. At the same time, the longer-term collapse of the manufacturing industry outside Midwestern cities pushed many people into poverty. Some of this is also due to the squeeze on the middle class in general. Indeed, the rapid rise in the poor population in the suburbs in the 2000s can’t be explained simply by more low-income residents moving there; a wide swath of the new suburban poor are longtime suburban residents who weren’t poor in the beginning of the decade but fell below the poverty line as incomes stagnated and home prices increased.” Leigh Gallagher writing for Salon.com, August 3, 2013. Suburban crime is soaring; urban blight has now spread to the suburbs as well.

In the end, the face of our nation is changing. Just as China and the Asia tigers are soaring, the United States faces a hostile world where its crumbling infrastructure, dwindling educational standards and inability to keep up with competitive pressures cannot sustain a military vastly larger than it can afford, a civil service retirement system that absolutely cannot pay its expected retirees and failed pledge of upward mobility that is at best an impossible and broken promise… and the rich just get richer. The demise of traditional “big company, bricks and mortar retail” might just be part of that bigger picture.

I’m Peter Dekom, and the only really certain projection of our future is uncertainty.