Retail W Minnesota

CBRE’s recipe for shopping mall success: More restaurants, less clothing stores

CBRE's recipe for shopping mall success,ph01
Restaurants, such as the popular Shake Shack in Bloomington, Minnesota’s Mall of America, can change the fortunes of indoor malls.

On paper, it sounds simple: Owners can boost the fortunes of struggling indoor malls by reworking the mix of merchandise they offer, moving away from traditional apparel stores and adding more restaurants, entertainment and healthcare options under their roofs.

The problem, as CBRE writes in a new national report, is that this bold fix for malls is one that’s easier to write and talk about than it is to put into place.

But taking on that challenge and changing that merchandise mix? That might be the only way to save some of the country’s indoor malls.

The CBRE report said that there are still two main categories of retailers that occupy most of the space in the country’s indoor malls, department stores, which occupy 48.7 percent of mall space, and apparel, accessories and shoes, which takes up 29.4 percent.

The problem? Both of those retail categories saw slow retail-sales growth form 2011 to 2016.

Those retail categories that are seeing stronger growth, though, still account for a relatively small percentage of indoor mall space. CBRE said that restaurants only occupy 4.6 percent of the space at malls. Sporting goods retailers occupy just 3.1 percent, home furnishings 1.6 percent and health and personal care stores 1.2 percent.

This mix is no longer working for many of the country’s large indoor shopping malls.

“The American mall itself isn’t anywhere close to dead; It’s the old mall model that is dying,” said Melina Cordero, CBRE Americas Head of Retail Research, in a written statement. “Converting malls’ tenant bases to include more of the categories that in-person shoppers now favor won’t be an easy or quick fix. But it is a necessary evolution for the mall industry to maintain its place as a cornerstone of American retail.”

One of the challenges to changing the retail mix? Most retailers lease space in malls for 10 or more years at a time. It’s not easy to change those leases or end them early without retailers’ consent.

Department-store chains often hold veto power, too, over any significant changes proposed for their space. In some cases, these chains can event veto changes proposed for the malls in which they operate.

CBRE does have some good news for mall owners and operators, though: The company said that struggling retailers are becoming more amenable to efforts to reposition the malls that they call home.

CBRE points to the recent successes of what are known as super-regional malls as proof that indoor malls can thrive by changing their tenant mix. Super-regional malls, the largest of the indoor mall types, specialize in offering diverse retail options, relying heavily on restaurants and entertainment options such as movie theaters, bowling alleys and adult-focused arcades. These larger malls have generated stronger growth in net operating income than have their smaller, regional peers, CBRE said.

“Going forward, we’ll see mall owners invest capital into placemaking and creating experiences for shoppers, which can include introducing more trendy, startup retailers in their malls,” said Todd Caruso, Senior Managing Director leading CBRE’s Retail Investor business, in a statement. “Studying the data underpinning a mall’s trade area, including consumer preferences, will help owners determine whether their strategies should include re-tenanting, redevelopment or demolition.”