The Mall is in free-fall

Implications:  The modern mall is a creature that is usually now 35 or so years old.  The birth and evolution of the industry is chronicled in the featured article.  Originally some 1600 strong, the breed now numbers say 1100 and will diminish further as the next era evolves.

Analysis:      Like any other aging set of buildings, the malls will less and less serve the needs of the community.  The sales volumes will leak to other communities or to peripheral retail properties or to the Internet as retailing progresses.  Interestingly enough, the article notes that the original mall tenants were local retailers escaping the death of downtown whereas now the usual tenant is a national chain.  As retailing always favors the most efficient distributor, more of the same progress will mark the coming decades.   The fortunes of the major owners of this product, General Growth Properties and Simon Properties, will diminish even further as sales more and more go elsewhere.  They are changing now as say General Growth has a huge development program scheduled and Simon takes on the revitalization of Mills.  The financial markets are not conducive to such growth and/or revitalization as they currently retract, so you can lengthen your estimates of development periods considerable as they seek to recast their portfolios.  General Growth will have a tough time in particular with their Rouse land portfolio in Las Vegas, Maryland and the Houston area as well as its MXD development programs, not to mention its small market centers in the Price portfolio.  Both companies have a significant presence in the Midwest and Rust Belt to contend with too.   We’re down to a strong Macy’s, a revitalized J.C. Penney, the luxury side keyed to Nordstrom and the Dillard’s also ran operation as the anchors to malls.  The majors are not the necessary attraction that they were initially in this industry as the other nationals in the mall are big advertisers too, but their decline will not put more motor into a revitalization of the fortunes of this sector of the shopping center business.   Originally, the major seven in the mall development business were Simon, E.W. Hahn, May Realty, Sear’s Homart, Rouse, DeBartolo and Taubman.  All are gone except Simon now (with the DeBartolo portfolio merged in) and Taubman.  General Growth rose from the consolidation of the industry, while Taubman has elected to stay in the way up-market ranges as well as expand overseas.  In my opinion, the consolidation of the malls is mostly done now and the fortunes of the industry are in the hands of General Growth and Simon.  To me, the 5 year period ahead looks tough and I’d look for many hiccups in the retailing and mall pictures.  It may be also that the CFO responsibility of these organizations may be impossible in the near term to fund as debt.  Increased capital costs will decrease the value of leverage and third party sales will reflect lower prices due to the interruptions in the financial markets.  Looks like a tough, low growth business to me.