Malls Swap Retailers For Gyms And Restaurants In Last-Ditch Bid For Survival

Tyler Durden's picture

With a record 8,640 retail stores expected to close in 2017, American malls are desperate to draw in customers as America’s retail apocalypse leaves them littered with empty store fronts. Now, some are experimenting with a model that worked for some movie theaters: Invest in restaurants and popular amenities like rock-climbing walls to sell customers a better shopping "experience."

To wit, Bloomberg spoke with the owner of the Newgate Mall, which plans to pour $500,000 into overhauling the outdated food court in a bid to lure restaurateurs and hungry shoppers. Rent payments from eateries are never going to recoup the renovation costs, but for landlord Time Equities Inc., that’s not the point.

“The food hall is part of an effort to breathe new life into the entire 718,000-square-foot (67,000-square-meter) center and increase foot traffic, according to Ami Ziff, director of national retail at New York-based Time Equities. The company, which bought Newgate in Ogden, Utah, from GGP Inc. for $69.5 million last year, is one of many landlords wagering that elaborate makeovers will keep them competitive as they reinvent their properties in the age of Amazon.

 

Costs are escalating as mall owners work to keep their real estate up to date and fill the void left by failing stores. The companies are turning to everything from restaurants and bars to mini-golf courses and rock-climbing gyms to draw in customers who appear more interested in being entertained during a trip to the mall than they are in buying clothes and electronics. The new tenants will pay higher rents than struggling chains such as Macy’s and Sears, and hopefully attract more traffic for retailers at the property, according to Haendel St. Juste, an analyst at Mizuho Securities USA LLC.

 

“The math is pretty obvious, pretty compelling, but there are risks,” St. Juste said in an interview. “This hasn’t been done before on a broad scale.”

Malls expanded square-footage rapidly during the 2000s, creating a bubble of retail space. Thanks to Amazon and the rise of e-commerce, that bubble has now burt. And for many malls, time is quickly running out. One Credit Suisse analyst estimates that a quarter of American malls will close over the next five years.

Already this year, more than 49 million square feet of retail space has closed. Should this pace persist by the end of the year, total square footage reductions could reach 147M square feet, another all-time high, and surpassing the historical peak of 115M in 2001.

According to Bloomberg, more than a dozen retailers have gone bankrupt this year as the shift toward online shopping accelerates. Even healthy retailers are shuttering hundreds of locations. As many as 13,000 stores are forecast to close next year, compared with 4,000 in 2016, according to brokerage Cushman & Wakefield Inc.

 
Some of these closings are the result of landlords preemptively kicking out weak retail tenents and filling those spaces with more-profitable businesses like gyms and the restaurant-arcade hybrid Dave & Buster's.

“Many landlords have been proactive in reclaiming space from weaker tenants to fill with more profitable ones. Chicago-based GGP, the No. 2 U.S. mall owner, has bought back 115 department stores over the last six years and redeveloped them, Chief Executive Officer Sandeep Mathrani said last month during the National Association of Real Estate Investment Trust’s annual conference in New York.

 

The new tenant roster at those malls includes Best Buy and Nordstrom stores, restaurant-arcade chain Dave & Buster’s and health club Life Time Fitness, he said.”

 

Department stores, which have performed particularly poorly in the age of Amazon, are a popular target for reclamation, even though they once were the centerpiece of many US malls.

 

“We’ve actually made a very, very big statement by saying that over the next five years, we hope to recapture another 100 department stores,” Mathrani said.

 

Ultimately, the wave of renovations is a shot in the dark. Data from landlords is sketchy, and retail analysts have trouble differentiating between maintenance, and improvements meant to help boost sales.

 

“It can be difficult to calculate capital expenditures for malls because of poor landlord disclosures, Green Street analysts said in the January report. It’s a challenge to distinguish between deferred maintenance -- for example, fixing a roof -- and projects that will actually generate additional revenue at a property, the analysts wrote.”

They could also lead to a wave of consolidation in the space, as only the largest landlords have the capital cushion to pay for these upgrades. These landlords also tend to own malls in more profitable markets, helping them recoup costs associated with upgrades through sales.

“Giants such as GGP and Simon Property Group Inc., the largest mall owner in the U.S., are better positioned to absorb the increased costs than their peers that own less-desirable real estate, according to Green Street. The two companies have some of the most profitable malls in the country, and their high sales volumes make it easier to recover expenses.

 

For Simon, redevelopment costs as a percentage of net operating income climbed from 3.5 percent in 2010 to 16.6 percent in 2015, before dropping to 7.6 percent last year, according to data Mizuho pulled from the company’s filings. A representative for Indianapolis-based Simon declined to comment. However, on a conference call in April, CEO David Simon responded to a question from an analyst about the potential for rising capital expenditures.

 

‘We spent a lot of capital in the portfolio to upgrade the look and feel. We’re going to continue to do that,’ Simon said. ‘I think the returns will be there, and I don’t think the dynamics of today’s current environment have changed that.’”

Still, whether these efforts will succeed in increasing sales and foot traffic and sales remains to be seen. For now, at least, investors aren’t buying it: Shares of the biggest mall REITs like Santa Monica, Calif.-based Macerich Co. are still in the red for the year.

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TeamDepends's picture

Add a vomitorium and you have a winning equation.

realmoney2015's picture

Good riddance. Overpriced low quality products. The overweight people who also want to buy low priced even worse quality products have left long ago for Walmart. The only people I've seen at malls in the last 10 years only go for a place to walk in the winter. 

 

Save_America1st's picture

good luck w/ that mall renovation...just pouring more bad money down a bottomless pit.

Watch these Dan Bell videos called "The Dead Mall Series".

https://www.youtube.com/watch?v=mOlffr73fuM&list=PLNz4Un92pGNxQ9vNgmnCx7...

 

 

NoDebt's picture

Eventually malls will crawl their way to the bottom of the food chain and realize the two things they need to offer are gambling casinos and brothels.  Mmmmmm.... and if we ever get around the legalizing drugs, opium dens would be a good addition, too.

Don't get all up-tight and puritanical on me.  Think it through.  Deep down, you know that's right.

 

TeamDepends's picture

Add in Johnny Pedosta's Kiddie Shak, The Most Dangerous Game Hunting Boutique, and an Obamacare "Free" clinic and that should about cover it.

Sector Catalyst's picture

Up in Canada, I've seen smalll-medium sized malls turning into health and medical complexes in a bid to survive.

NoDebt's picture

If the mall also had legalized drug dens they would have a convenient built-in source of revenue for the medial businesses.  Think about all the Narcan rescuses and overdose resuscitations they could bill for without having to do anything more than walk 100 yards up the mall.  If that's not retail nirvana I don't know what is.

 

Sector Catalyst's picture

Also, add in a funeral home/crematorium as well.  

PT's picture

Halt it everywun!  PT has had a brainwave!  Amazon can use the empty malls as warehouses for all the crap they sell.  And they can use different parts of the mall to store different things - eg.  store up-market women's clothes in one area, down-market women's clothes in another area, food in another area, toys in another area, jewellery in another area, CDs and DVDs in another area, computers in another area, books in another area etc etc etc.

And then, to save the cost of dispatching stuff all the way to people's homes, perhaps the people would like to come into the mall and look at all the stuff and buy it there and take it home themselves.  Hell, by looking at all the stuff they might even see a few other things they forgot they needed and buy that stuff too.  Let's call it "impulse buying".  And if people are unsure of the right size of the clothes or shoes they are buying, perhaps they could try them on before they click "Buy", I mean, before they pay for it and take it home!  And if the people are picking up the stuff and taking it home themselves, perhaps they won't even need the internet!!!!  Maybe the Amazon could put up some colourful signs telling the people where to find different goods.

See wot a genius PT is!  Oh, wait -

The Real Tony's picture

I've seen that but only in small strip malls

Antifaschistische's picture

At Houston's Memorial City Mall (one of the nicer Malls's in Texas) they have lined the walkways with those kiosks with the high pressure Tijuana, Chinese Tourist Trap like sales vultures that attack the weak.  I go OUT OF MY WAY to avoid these idiots....DO YOU HEAR THAT MALLS....I AVOID YOU because of your 3rd world sellout sales people.

NoDebt's picture

Malls will be the retail equivalent of bus depots.  Homeless guy washing his armpits in the sink with a dirty rag, junkie shooting up in the corner of a bathroom stall and some guy trying WAY too hard to sell you a "genuine Roledex watch" out in the hallway while the local criminals are trying to figure out if you're an asy mark for a mugging on your way to your car.  There will also be no shortage of 3-card-monte games for your amusement sprinkled about the joint.

Am I too cynical?  Be honest.  I think I've become cynical.  Maybe just a little.

 

 

813kml's picture

Also needs a gun range that offers hobos in kevlar so patrons can practice live fire.

And cockfighting.

hairball48's picture

probably not cynical enough

Dr.Evil's picture

It has alredy been decided. They will become giant disribution centers for Amazon. Drones from the roof, trucks in the parking lots. 2hrs free delivery on Prime.

a Smudge by any other name's picture

Turn them all into super-churches! The new trend in churches out west is basically the same forumula: all day all week entertainment.

Just swap out worship of consumerism with the worship of consumerist religion for the masses!

Canary Paint's picture

Thank you for making me laugh.

Let's put these shitholes to sleep. There must be some kind of use for them.

Plan just came to mind...

If we ever stop bombing other countries, we'll still need to blow shit up or the management and executive class of blow-things-up industry will be nervous and unfulfilled.

We can make malls into giant doghouses for cattle.  Bomb the parking lots into dust. Plant something for grazing. Voilà... Problem solved!

Part of the mall can be converted to a slaughterhouse! It's perfect!!!

DeltaDawn's picture

FYI, doghouses for cattle are referred to as "barns"

Canary Paint's picture

Another deeply needed laugh from this comment section... Thanks for fixing that vocabulary brainfart!

Twee Surgeon's picture

"Thing's ain't been goin' so well so we gotta throw out some of them payin customers ya see, that should fix things right up !" (From 3 Stooge's 'Day at the Mall 1928.) With thinking like that to back them up, I'm sure they will all rebound in just a few months.

 

DEMIZEN's picture

i think restaurants clubs and other entertainment might acctually work for malls.

conraddobler's picture

A mall of bars or nightclubs actually makes some sense as you can walk them without driving tanked up.

I think you're right that would work it works for casinos who have mall like entertainment in them.   Heck stick a casino in each one and it's golden.

DEMIZEN's picture

all you need is one living member of cherokre tribe and a good lawyer.

DEMIZEN's picture

all you need is one living member of cherokee tribe and a good lawyer.

Sonny Brakes's picture

It would turn into a sausage festival.

HRH Feant2's picture

Add a hotel and a decent restaurant and that could be a winner.

Antifaschistische's picture

how about bringing the book stores back to the malls...they don't need 8000 square feet anymore anyway...they're removing their books to sell trinkets and junk.

how about an Ace Hardware to attract something other than pre-pubescent girls looking for a new pair of shoes.  WHY do you force me to go to a stand alone store to find an extension cord!!  I can go shopping for some screws while the ladies do their crap!!  There's not a SINGLE DUDE store in my mall and Brookstone has gotten boring over the years.  Where's the freakin KNIFE stores like we used to have.

Bring BestBuy into the malls...they also don't need all their square footage.

And since we're in Houston (memorial city mall) can we get a freakin gun store and a shooting range!!

...and why do all "food" places need to be in a food court that resembles a junior high cafeteria.  Can we get some decent restaurants that ARENT attached to the freakin food fair where I have to listen to that stupid carousel and screaming kids!

how about a cover charge...you walk in the mall, and walk out with nothing...it still costs you $5.  :)  that way we screen out some of the loitering parasites that come from god knows where.....along with those punks with their skateboards.

 

Pernicious Gold Phallusy's picture

Just an observation... I think Ace's business model includes finding a low-rent strip mall. Big malls charge staggering rent.

PT's picture

I, too, noticed a while ago that 99% of the stores in a mall cater for women - women's clothes, women's shoes, women's hair stylists, jewellery, discount stores that sell crap oriented towards women, florists, women's gifts etc etc etc.

just the tip's picture

the casinos would only buy out the malls as they bring their own set of investors that have to be placated.  that and the indian tribes would want too big of a "cut".

Pernicious Gold Phallusy's picture

A new high-rise complex was built here 20 years ago. The bottom area was a mall of bars and restaurants. It didn't work. Rent was too high, and people couldn't afford the food/beverage prices. Hooters is still there for conventiongoers.

bloofer's picture

Mybe some of them could be turned into full-service spas, with attached fat farms where you check in for a week or two to lose weight. You could have massages, manicures, pedicures, yoga classes, and all kinds of cool things done to your skin and hair while dining on cucumbers and seaweed.

conraddobler's picture

What do you need at the mall?

I'm at a loss for an answer.  

Almost anything you'd need could be gotten elsewhere probably cheaper and better quality, just my opinion.

espirit's picture

But you don't get to rub jizz on it just for giggles.

mary mary's picture

One goes to a mall to meet members of the opposite sex.

NoDebt's picture

For real?  If you want to meet someone of the opposite sex (which, by the way, makes you homophobic by definition) you go where everyone else goes- the grocery store at midnight on a Saturday.

Hell, that's where I picked up my last two wives.

(Just kidding- I've only been married once and I got her the honest way- by stealing her from my best friend when I realized she was too hot to be with a loser like him.)

 

just the tip's picture

do you write country and western music on the side?

mary mary's picture

Doesn't EVERYBODY write country and western music every once in a while?  Come on, everybody, FESS UP!

TheWrench's picture

Write it? Hell, I live it.......

PT's picture

My condolences for your pet dog.  And never mind that girl that left you.  She was a bitch anyway ...

Blano's picture

Thanks for the laugh.

mary mary's picture

:-)  And when are you going to take out the garbage?  Wasn't the deal that I cook and you take out the garbage?

Pernicious Gold Phallusy's picture

Just don't go to the laundromat to meet women. If they can't afford a washer and dryer, how will they support you?

The Real Tony's picture

More parking spots so you don't spend half a day trying to find a parking spot. Some parking spots in the malls get ticketed all day long as they're too close to the subway.

directaction's picture

Why pay gyms?

Just walk, jog or bike and do lots of push-ups.

It's free, healthier, enter for your body.

espirit's picture

I like to sweat in air conditioned comfort.