Economy’s Latest Victim: Shopping Malls Are Closing

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Is the economy killing that late 20th century American (and teenage) institution and consumerism Mecca – the shopping mall?

The evidence is coming in that it is. The Week reports:

Enclosed shopping centers, long the cathedrals of American consumerism, are closing their doors by the hundreds as the recession continues to clobber retail sales. Is America’s love affair with the mall over?

The vital signs are not good. Even before the recession hit, consumers had developed mall fatigue, and the classic enclosed shopping mall was in decline. More than 400 of the 2,000 largest malls in the U.S. have closed in the past two years. The last new major mall in the U.S. opened in 2006, and only one big mall is scheduled to open this year—the troubled Xanadu mega-mall in Rutherford, N.J. (See below.) With some 150,000 retail stores projected to fail in the U.S. this year, more mall closings are imminent. Mall mainstays such as Mervyn’s department stores, Linens ’n Things, and KB Toys have already disappeared into bankruptcy, and mall vacancy rates topped 7 percent last year, the highest level since 2001. “It’s an absolute disaster,” says Howard Davidowitz, an investment banker specializing in retailers. “What a mall represents is discretionary spending, and discretionary spending is in a depression.”

Is it really that bleak? The Week says it is. For instance:

*As sales have dropped, malls’ longtime “anchor” stories such as JC Penny and Sears have started pulling out of malls.

*Buyers habits are changing — from going to big discounters such as WalMart where they can get prescriptions, groceries and highly discounted goods to shopping online.

And the future? It doesn’t look rosy, The Week reports:

Some are being razed to make room for “big box” stores such as Home Depot and discount clubs such as BJ’s and Costco. Still others are being turned into open-air “lifestyle centers,” ersatz Main Streets to replace the real Main Streets that were decimated when malls lured away their customers in the first place. The stores in these centers are at ground level and have entrances facing the street, which helps boost store traffic and sales. Like real Main Streets, lifestyle centers include restaurants, movie theaters, and pedestrian plazas, as well as shopping. The amenities “draw the consumer in for reasons other than to just purchase items,” says Erin Hershkowitz of the International Council of Shopping Centers.

And if you think this means the rebirth of once thriving downtowns, think again. Experts don’t expect that, either.

That means some communities will soon be without a mall or a thriving shopping district, leaving them with no central gathering place. “One of the biggest consequences of mall closings is the loss of a sense of community,” says David Birnbrey of The Shopping Center Group, “a place where people gather and socialize.” And exercise. Retirees Dick and Anne Saplata work out by walking around the largely empty halls of the Metcalf South Mall in Leawood, Kan. It’s likely to close soon, and there’s talk that a developer will raze the place. If the mall goes under, Dick Saplata asks, “where are we going to walk?”

You can see more evidence of this if you do a little research. Here’s just one tidbit from Milwaukee’s Business Journal:

The nation’s largest shopping center owners are scuttling new projects this year, killing hopes for a 2009 ground-breaking on the proposed Pabst Farms Town Centre in Oconomowoc and a possible redevelopment of Southridge Mall in Greendale.

Developers Diversified Realty, the co-developer of Pabst Farms, has dramatically slowed new development spending, chief executive officer Scott Wolstein told analysts recently. The company does not expect to start any projects in 2009, he said.

Wolstein’s statement runs contrary to previous pronouncements by his company and its local partner, Pabst Farms Development, about opening in 2010. A regional shopping center would have to break ground by this spring in order to open by 2010, retail industry experts said.

Pabst Farms spokesman Thad Nation acknowledged this week that a 2011 opening for the shopping center near Highway 67 and Interstate 94 is a possibility. Developers are unsure whether it would happen in 2010 or 2011, he said.

Developers Diversified and representatives of Pabst Farms Development will, for the second consecutive year, attend the International Council of Shopping Centers convention in Las Vegas in May to recruit retailers, he said.

“The progress of this project remains tied to leasing,” Nation said.

An alarm on mall closings came out in December via CNN:

As the recession leaves more retail casualties in its wake, rising store bankruptcies and mall closures could have devastating economic consequences.

As more stores exit malls, vacancies in regional malls could rise past 7% by year-end, a level not hit since the first quarter of 2001, according to real estate research firm Reis.

Major cities across America will be affected, said David Birnbrey, Chairman and co-CEO of Atlanta-based The Shopping Center Group, a retail real estate services firm.

Both Birnbrey and Susan Wachter, professor with University of Pennsylvania’s Wharton Real Estate Department, warn the social and economic impact of empty stores can be devastating.

“One of the biggest consequences [of store and mall closings] is the loss of a sense of community,” Birnbrey said. “I am a big believer that malls are an essential part of Americana. A mall is a place where people gather and socialize.”

In addition, many municipalities are heavily dependent on retailers for the tax revenue and jobs that they generate.

For example, Montgomery County, Pa., gets as much as 50% of its tax revenue from the local King of Prussia mall, said Wachter.

The impact will be felt on local police service, schools and roads, said Birnbrey.

The impact is also being felt on malls that are open: some are now closing earlier to save money.