Shopping malls, the future can’t wait

MICHELE CAPRINI
17/09/2020
In brief
In the spring of 2019, we wrote: “Malls, at the end of one race, another one begins”. The health emergency induced by the Covid-19 pandemic has further complicated this race, very clear at the starting point but with a very difficult and yet-to-be defined course, leading to the finish line.

Analysts of Coresight Research projected that about 25% of american shopping malls will disappear within the next three to five years. But Coresight CEO Deborah Weinswig warned the number could go “as high as 50% if we can’t stop the bleeding. This will end up changing the face of America”.

Even before the pandemic, world retail was in the midst of radical changes, of which malls are an integral part. In the United States, however, the crisis in this sector is having an impact that is not comparable with the rest of the world. After all, what is at stake here is a distinctive feature of the retail landscape of that country.

ANCHOR STORES

The American malls crisis is closely entwined with that of department stores, covering about 30 percent of their space. According to Green Street Advisors, the British industry leader in real estate, more than half of department stores in shopping malls could close by the end of 2021. Some large retailing chains are no longer able to pay the rent and, after the winding up of a retail icon like Sears it was the turn of Neiman Marcus and JC Penney to file for Chapter 11 bankruptcy protection.

Department stores are considered anchor stores at shopping malls, and justify their existence by attracting shoppers and pedestrian traffic. The other mall tenants have leases with a so-called co-tenancy provision allowing to pay a reduced rent or even terminate the lease if two or more anchor shops leave a location. Overall, the announced closures cover more than 83 million square meters of retail space.

Other world-renowned brands are abandoning at an increasingly fast pace what were once the cathedrals of commerce. In the fashion sector in particular, clothing stores occupy today half of the malls space.

CONVERSION AND REPOPULATION

There is therefore a strong case for redevelopment and reuse options. At the centre of the discussion, passionately shared also on social media, is the future of the peripheral areas, with many communities in favour of the conversion into local markets or office spaces or, even, affordable housing.

Much attention will in any case have to be paid to small shops. If, as expected, rental prices in large areas will drop, it would make sense for traditional establishments to take ‘shelter’ in shopping malls, relying on the desirable greater level of pedestrian flow than in their original locations.

VIRTUAL MALLS

It is too early to estimate with good approximation what will be the definitive effects of the lockdown on consumer behaviour throughout the world. Social distancing is not going to be a short-lived phenomenon and could affect the behaviour of hundreds of millions of people. Many customers, who were already shopping online or turned to it because of Covid-19, could increasingly choose to stay away from enclosed places.

In Asia, from Bangkok to Singapore, entire malls hit by the aftermath of the pandemic are veering towards e-commerce.In Singapore, May retail sales plummeted by 52.1% compared to 2019, the highest negative spike since this market began breaking records in 1986, and last quarter data shows that its economy has fallen into recession.

Marina Square, one of the world’s most important shopping complexes, nestled among luxury hotels and tourist attractions in the centre of the island, is creating its virtual replica thanks to the support of Lazada. The company, controlled by the Alibaba Group since 2016, is the largest e-commerce operator in the Southeast Asia region which includes — in addition to Singapore — Indonesia, Malaysia, Philippines, Thailand and Vietnam.

It is too early to design paths and dimensions of the phenomenon which will undoubtedly end up coexisting with traditional malls and certainly not for replacing their global presence. But this process had precisely and effectively started from the east, where the international balance of retail is shifting and the boundaries of competence will certainly have to be defined.

IN ITALY

According to the National Council of Shopping Centers, at the end of 2019 there were 1220 centers in Italy, including malls, retail parks and factory outlets, accounting for a turnover of €139 billion, produced with 587,000 employees, with an impact on the GDP of 4%.

In our country, where most of the shops reopened on 18 May, the customer frequency data in the first days following the lockdown turned out to be more positive than expected, recording, however, a decrease of 25% compared to the same period of last year. Over the past twenty years, this sector has enjoyed unlimited expansion with over 13 million square meters. Already last year, however, ShopperTrak Italia had highlighted a significant decrease of 6.2 percentage points from the previous year.

Few malls have shown a noteworthy trend. According to Confimprese, Oriocenter boasts an increase in turnover of 13%, a somewhat comforting figure given that the center is located in one of the Italian areas most affected by the pandemic.

A sharp fall of rental demand in large commercial areas is very likely. The task force led by Vittorio Colao for the restart of phase 2, has drawn up a list of 97 items with the indication of the risk level, including in Class 4, i.e. with a high risk rate, precisely the shopping malls.

KEEPING AN EYE ON THE RULES

In addition to dealing with the effects of the pandemic and designing the subsequent business models, there is the need to respect urban constraints and territorial planning regulations. With the rising car traffic and related increased impact on the landscape, especially in urbanised areas, the European Court of Justice confirmed in 2018 the validity of tax incentives for large commercial areas. Obviously, the rules for the protection of the environment must be seen as part of the assessment of the strategic importance of sustainability in any recovery and development model.

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