0

Traffic to Class B and Class C malls has been declining over the past decade. About 25% of the malls would be closed by 2022. While struggling B and C centers continue to see year-after-year declines, most of the benefits are going to top-tier Class A malls because of better traffic consolidation. These middle-tier malls were in deep waters before the pandemic hit. While they are managing to stay afloat, a record number of retail bankruptcies and reduction of anchor store footprints puts them with an uncertain future.

  • According to the International Council of Shopping Centers, about 105 million Americans or almost half of US adults went to a mall in 2018, making an average of 2.1 trips per month. Alternatively, the mall traffic declined by 7.6% in 2018, and the vacancy rate went up to 9.4% in Q3 2019, the highest since the great recession.
  • According to experts, shopping malls in the US are seriously impacted due to Amazon and other variables like the cost of upkeep, out-of-date tenants, and shifting demographics.
  • A recent study on more than 80 million Americans found that baby boomers are likely abandoning malls faster than younger generations because of the rowing adoption of online shopping. Alternatively, it is noted that Gen-Z shoppers made the highest number of trips to the mall at an average of 8.6 trips.
  • Shoppers are bored with the mall’s status quo as all the stores carry similar brands and store formats. Now, customers are more interested in different experiences targeted toward a specific audience, making it exciting to shop.

Class A Malls vs. Class B and Class C Malls

  • Malls are classified by Sales per Square Foot, i.e., Class A — $500 or more of sales; Class B — $300 to $500 of sales; and Class C — Less than $300 of sales per square foot.
  • According to Green Street, there are 270 Class A malls in the US, accounting for 20% of all US malls and generates nearly 72% of total mall value. The balance of over 700 malls is segmented into Class B and Class C malls.
  • According to Credit Suisse, about 25% of roughly 1,100 malls in the US could close their doors by 2022.
  • While struggling B and C centers continue to see year-after-year declines, most of the benefits are going to top-tier Class A malls. It leads to better traffic consolidation toward better properties.

Factors Affecting the Decline of Class B and Class C Malls (Pre-Covid)

  • Anchor stores like Sears and JC Penney are supposed to drive traffic for the mid-tier malls. It is found that in the year after a mall loses an anchor tenant, malls see their traffic drop by 5%.
  • Class B malls are not doing great because they basically share the same struggling tenants as the class C malls. The class C and class D malls are affected the most they cater to inferior demographics, translating into less productive stores and fewer sales per square foot.
  • Once a mall starts getting some vacancies, fewer people start visiting the mall because there are fewer options. Hence, the malls become less productive, leading to more store closures. Malls in middle-class and lower-income areas are suffering because abandoned malls happen to be bad for neighborhoods.

Impact of COVID-19 on Overall Mall Traffic

  • In 2020, retailers have announced the closure of more than 80 million sq. ft. space. That compared with 114 million sq. ft. space for entire 2019.
  • According to Coresight Research, mid-tired malls can witness 25% to 50% closures within next three to five years due to the impact of pandemic. Further, it is projected that without rent relief, store closures could accelerate.
  • A survey on shoppers revealed that more than 76% would deter from holiday shopping at crowded malls during this period. Instead, about 41% of shoppers hope to rely more on online shopping.
  • Class A mall owners like Macerich, Simon Property Group, and Taubman Centers are bouncing back from the shut-down almost shockingly well. Taubman’s shares rose by 31% in June, Simon Property Group was up by 18.5%, and Macerich jumped by over 15%.

Accelerated Decline of Class B and Class C Malls due to COVID-19

  • Aggregate traffic to malls declined in 20-out-of-24 months in 2018 and 2019, hitting the bottom in April 2020. Mall visits recovered to 55% of January levels by September 2020 as many malls reopened.
  • Malls with a vacancy rate of more than 20% lands them in a “danger zone.” In September 2020, the number of malls in danger zone jumped to 28% from 8% last year. Additionally, about 11% of B and B+ malls have two anchor store vacancies, while nearly 30% of B- malls have two or more empty anchors.
  • According to industry experts, Class B are in a gray area where some will weather the storm, but many won’t. These middle-tier malls were in deep waters before the pandemic hit, and while they are managing to stay afloat, a record number of retail bankruptcies and reduction of anchor store footprints puts them with uncertain future
  • According to Coresight Research about 20,000 to 25,000 physical retail stores in the US will close this year, with at least 50% located in malls.
  • Vince Tibone, senior retail analyst at Green Street said that “A lot of the B malls are going to become obsolete,” unless they offer unique shopping experience, consumers are likely to drive to a Class A mall or shop online.
  • Class B and C malls are typically located in less populous areas that have lower traffic and fewer high-end tenants, meaning lower rent. CoStar forecasts that mall rents will further drop by 12.5% in 2020 compared to last year.
  • Kat Cole, president and chief operating officer of Focus Brands said “There are malls that this crisis will accelerate their closure, no doubt.”
  • Green Street Advisers, has predicted that 60% of mall-based department stores will close by the end of next year.
GLENN TREVOR
Glenn is the Lead Operations Research Analyst at The Digital Momentum with experience in research, statistical data analysis and interview techniques. A holder of degree in Economics. A true specialist in quantitative and qualitative research.

United States HIV Consultation Costs, Emergency HIV Plans & HIV Support Groups

Previous article

Case Studies Detailing What Specific Companies in the U.S. are Doing (or Programs they are Running) to Hire Black Students and Early Career Candidates.

Next article

You may also like

Comments

Leave a reply

Your email address will not be published.