Shopping Center Business

MAY 2017

Shopping Center Business is the leading monthly business magazine for the retail real estate industry.

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RETAIL RESEARCH 150 • SHOPPING CENTER BUSINESS • May 2017 sales volumes and conversion rates (what percentage of people entering the store actually make a purchase). Today, with on- line and in-store purchases intertwining, retailers and their landlords face pressure to find additional measurements. They'll need to share more data for determining the origin of sales and quality of a center's foot traffic, among other relevant metrics. This is a major opportunity and challenge in the era of omnichannel retailing. MYTH 3: THE MALL IS DEAD Catalogs were once heralded as mall killers. Then home-shopping channels got the title. And now it's e-commerce. Despite the hyperbole, each new challeng- er has caused the mall industry to adapt rather than to expire. To be sure, store closures of late pose a challenge. Earlier this year, Green Street's "2017 Mall Outlook" report sug- gested that 800 department store loca- tions would need to shutter to return to 2006-level sales productivity. That would represent roughly 20 percent of the coun- try's existing mall-anchor square footage 4 . However, the industry's pain won't be felt evenly. Rather than the largescale decline of the shopping mall, we're witnessing a growing divide between the "haves" and the "have-nots." The thriving properties are the A-grade malls, which are high-performing centers in densely populated areas with high in- comes, strong job growth and little com- petition. Nearly all are owned by large REITs and institutional owners who have narrowed the focus of their capital and at- tention in the past decade to the industry's best properties. These malls continue to generate strong and oftentimes rising foot traffic, growing sales per square foot and substantial leasing spreads. The rest of the industry — the B- and C-grade malls — are in the throes of evo- lution. Many are mired in markets that have deteriorated since the properties' construction in previous decades, beset with decreasing population, declining of stagnant income and weak job markets. Some are victims of past overbuilding. Even so, the notion that many malls will close, wiping out much of the industry, is pessimistic fallacy. Most of these malls stand on valuable land at the intersection of major thor- oughfares. Thus, many eventually will be redeveloped into mixed-use projects with less retail and more alternative uses such as medical, office, residential, hotels and education. Most also will shift their tenant mix to adapt to changes brought by omnichan- nel shopping and consumer preferences. Consider that half of regional mall square footage is occupied by department stores, while 58 percent of the remaining in-line space is leased by apparel stores, accord- ing to ICSC. These are the two slow- est-growing categories for retail sales and among the highest for e-commerce sales penetration since the recession. To right themselves, many malls must embrace higher-growth categories with lower e-commerce penetration rates. That likely means adding experience- and entertainment-oriented tenants like restaurants, cinemas and services. The mall's primary competitive advantage over the internet lies in its experience; the industry must capitalize on that. CONCLUSION While there is some basis to these myths, the retail industry is far from doomed. E-commerce is not replacing physical retail; it is redefining it. Consumers like shopping online but prefer to combine e-commerce with a store visit. The mall is not dead, but many of them must and will adapt. Today, we stand at a major inflection point in the evolution of brick-and-mortar retail. We must be careful not to mistake change for decline, because though the in- dustry faces threats, it faces just as much (if not more) opportunity. SCB Melina Cordero is head of retail research in the Americas for CBRE Group, Inc. 4 Green Street Advisors 2017 Mall Outlook, as cited in CNBC HISTORY CULTURE TRANSIT THINK LEBANON Fst E C O N O M I C D E V E L O P M E N T Cedar City Lebanon sits in the heart of Middle Tennessee and is one of the South's most beautiful residential areas. Located just minutes East of Nashville on Interstate 40, providing you easy access to everywhere. We are committed to fostering a positive business environment with a "Business Concierge Program," which strives to provide you with an unmatched level of personalized service. GROW WITH US Sarah Haston Economic Development Director 615.443.2839 Ext. 2120 www.lebanontn.org

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