Two years ago, when discussing the long-term prospects for Bill Ackman's aggressive pursuit of General Growth, we noted that while the short-term post-reorg oversold bounce is warranted, the secular shift away from big-box stores and disappearance of retailers means that many more bankruptcies are sure to follow, and will be punctuated by all time highs in mall vacancies courtesy of an ever-growing shift to internet shopping. So while the incremental bankruptcies in commercial REITs have been slow in coming primarily due to record low interest rates, the mall vacancy number just hit a new all time high. According to Bloomberg Brief: "In 1979 the one-hit wonder Buggles sang “Video killed the Radio Star.” Several economic indicators suggest it’s time for a Buggles revival: “Internet Killed the Radio Store.” The popularity of Internet shopping is having a considerable impact on the retail landscape; mall vacancies are at the highest level in measured history, big box stores are looking to reduce their footprints, and those selling book, electronics, and sporting goods are closing. During the third quarter, vacancies at regional and super-regional malls rose to 9.4 percent from 8.8 percent a year earlier and 9.3 percent in the second quarter, according to the New York-based property research company Reis. This was the highest since data was compiled in 2000." In other words, in addition to the Fed, REITs are the next entity class to have gone all in on interest rates never going up: because without organic upside growth, the only marginal benefit is from continues interest benefits. Once those end, it is game over, first on the margin, and then literally.
Some more from Bloomberg:
The bankruptcies of Borders, Linen’s & Things and Circuit City are among the most obvious results of the comeuppance of on-line shopping. Additional store vacancies should be expected given Gap’s recent announcement of closures. The approval of the AT&T acquisition of T-Mobile by federal regulators would also have an impact.
This news will eventually hit broad-based employment, as retail employment at clothing, hobby, book and music stores has traditionally been quite high. Look for this number to start rolling over soon:
Employment data reveal the trend away from hiring at establishments that sell goods easily purchased on the Internet like books and hobby supplies. The need to employ sales people at apparel and accessory stores has actually increased since sales assistance is a necessity. An extra large shirt is not the same across all brands, and footwear sizes vary greatly. Colors can mislead on the web.
Wal-Mart and Best Buy are experimenting with smaller store formats. In its last quarterly earnings conference call Best Buy said, “… we are planning to reduce our big box square footage by 10 percent over the next three to five years. Our test results so far in this space continue to indicate that a store prototype which combines the enhanced operating model with reduced space and lower operating costs has not materially lowered our sales volumes.”
As a result of having to hold 7+ jobs to make ends meet, Americans now spend the least amount of time in malls since 2003:
Time spent in shopping centers has declined over the years, according to a U.S. Labor Department study. The number of minutes Americans spent per shopping excursion has fallen from a peak of 49.2 minutes in 2004 to 44.7 minutes in 2010. There are several reasons for this trend, including time-strapped consumers and less need for store browsing due to the Internet. Consumers can check prices on the web, make a trip, run in and make a purchase and dash back to the car.
But don't blame Canada:
The malls that appear to be performing the best are those along the Canadian-U.S. border. A stronger Canadian dollar has made U.S. purchases more attractive. This phenomenon was seen during the back-to-school period, and will likely be strong during the upcoming holiday season.