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Mar 7, 2024 - Economy

Shopping malls aren't sweating the decline of retailers: "This is not a big issue"

headshot
Person stepping on a shopping bag.

Illustration: Gabriella Turrisi/Axios

It might be time to drop the shopping from shopping mall.

Why it matters: The quintessential American mall has been a staple on the shopping landscape for decades, but it's been under siege for years from big-box stores, digital competitors and alternative sources of entertainment.

Between the lines: A slew of traditional mall retailers have reported dismal earnings over the last week:

  • Macy's is closing another 150 stores as sales continue to slump.
  • Victoria's Secret shares plunged more than 30% Thursday after it projected a third straight year of sales declines.
  • Foot Locker CFO Mike Baughn said Wednesday that the company is two years behind schedule in reaching its profitability goals, sending its own stock down 29%.
  • Nordstrom's stock is down 18% in the last week after the department store chain said its 2024 revenue could fall by as much as 2%.

The big picture: Shoppers simply aren't frequenting the same types of stores in search of apparel as they once did.

Gone are the days when department stores were guaranteed to be the anchor tenants of successful shopping malls.

  • The category — which has seen the bankruptcies of Sears, JCPenney and Neiman Marcus in recent years — represented only 2.6% of American retail sales in 2023, down from more than 13% in the 1980s, according to GlobalData.

But the shift isn't scaring mall owners.

  • The U.S. mall vacancy rate in the first quarter of 2024 is 8.27% — exactly the same as two years earlier, according to CoStar.

What they're saying: "Somebody shrinking their store profile is something we deal with for the last 30, 40 years. So this is not a big issue," David Simon, CEO of mall giant Simon Property Group, said Tuesday on an earnings call.

  • "To the extent that there's a Macy's store that closes that triggers co-tenancy, it's de minimis to us. And we're always looking to put better retailers in there."

Case in point: Some notable mall retailers are sticking around as they find ways to reinvent themselves.

  • Abercrombie & Fitch's stock is up more than 350% over the past year as the once-beleaguered retailer reconnects with its customer base.
  • American Eagle Outfitters Thursday projected revenue growth of 2% to 4% this year, giving a boost to its shares.

The intrigue: Traditional mall retailers are also yielding space to more nontraditional tenants, such as restaurants, fitness chains, grocery stores and medical facilities, according to CoStar.

Reality check: Top-tier malls are faring better than lower-end malls, according to Coresight Research.

  • High-end locations had 95.1% occupancy rates in 2022 — about the same as pre-pandemic.
  • Lower-end locations had 89.1% occupancy rate, down from 92.7% in 2018.

The bottom line: Modern malls are relying less and less on the likes of Macy's and Foot Locker as they pave a new path.

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