“Come gather ’round people
Wherever you roam
And admit that the waters
Around you have grown
And accept it that soon
You’ll be drenched to the bone
If your time to you
Is worth savin’
Then you better start swimmin’
Or you’ll sink like a stone
For the times they are a-changin’.” – Bob Dylan
You may have observed, amongst crazy crowds trying to find gifts to symbolize their love for family and friends during the holidays, that the crowd is a tad thinner than years past. RetailNext, an in-store analytics firm, reports that the number of store visitors in 2016 “fell nearly 11% on Black Friday from a year ago and sales dropped more than 10%.” 
Meanwhile, Adobe Systems Inc., analyzing data from 22.6 billion visits to retail websites, reports that online spending on Black Friday “increased nearly 17.7% to $5.27 billion compared with last year.” 
The sea change in consumer behavior to a strong preference for online shopping continues to put pressure on traditional brick and mortar retailers. This past year has seen a number of high profile bankruptcies, including Toys “R” Us, Payless, HHGregg, Gymboree, rue21, The Limited, and others, and the past two years have brought the unfortunate “chapter 22s” of American Apparel, Eastern Outfitters, RadioShack, and Wet Seal.
The Drivers Behind the Brick and Mortar Decline
The primary drivers of brick and mortar distress stem from the proliferation of e-commerce and the built-in costs associated with maintaining a physical retail footprint. In a microcosm, fast fashion retailers, such as Zara and Uniqlo, act as disrupting apparel providers and the traditional elongated fashion cycles. In today’s market, nearly every retail channel is being changed and challenged by Amazon. Amazon even has a competitive edge when it comes to consumers purchasing the most common of household items, such as batteries.
It has also long been recognized that the United States is “over stored;” our exceptionalism includes more retail space per capita than any other country in the world. Exhibit A illustrates the overbuilt nature of physical retail’s footprint when compared to other developed economies around the globe.
Bankruptcy Legislation Fuels Retailer Woes
The 2005 Bankruptcy Code amendments had a profound effect on retailers, particularly the treatment for commercial leases within bankruptcy protection. Before the amendment, retailers could take more time determining whether to assume or reject their leases. The amendment now forces retailers to assume, assign, or reject leases on an expedited basis, usually within 120-days from the petition date, challenging for the merchandizing strategic thinking and the administrative expense burden during the bankruptcy proceeding. Depending on how the data is cut, there has been a meaningful increase in liquidations, particularly in retail, since the amendment, as opposed to a traditional plan of reorganization (see AlixPartners Retail Bankruptcy Study). 
Meanwhile, 40 years ago, many retailers that turned to chapter 11 to reorganize emerged from bankruptcy, at least for a while – think of R.H. Macy & Company, Allied Stores, Carter Hawley Hale, Federated, Toys “R” Us, Hills, and even Ames Department Store. All had a nice post-bankruptcy run.
Today, in part because of changes in the bankruptcy code lobbied for by landlords – in hindsight, perhaps to their regret – it is becoming a rarity for a retailer to emerge. Think of Border’s Books. Kudos to Payless Shoes for pulling off the long shot.
The Retail Landscape Today
Fung Global Retail & Technology, a research and advisory firm, projects 9,452 store closings in 2017. This rate jumped 53 percent compared to the number of doors that went dark during the Great Recession in 2008.  If history is any indicator, after this holiday season, more filings and more store closures are likely, as January and February are traditionally tough months in retail.
A number of waves have impacted retail, and thus the mall operator. First was the “big box” effect from the likes of Wal-Mart, Barnes & Noble, and Target. Next was the no-frills effect from the Costco, BJ’s, and Price Club. And perhaps the coup de grâce, of course, is e-commerce, with Amazon being the behemoth. Exhibit B, illustrates of a sample of the more prolific liquidations over the past several years.
Some analysts predict over a quarter of the nation’s malls will close by 2025.  In the most recent example of an industry player exiting the battle, Westfield Corporation agreed to sell to Unibail-Rodamco for approximately $16.0 billion.
Any Positive News?
Indoor malls will continue to “turn inside out,” that is to covert inside corridors to outside avenues with smaller boxes and larger diversity of merchants, including plenty of free, convenient parking and activity space to turn them into attractive destination locations.
Specialized grocery markets will also provide a boon to the traditional mall. Offerings like Whole Foods, Wegmans, and Trader Joe’s will continue to play a prominent role in the retail landscape, replacing traditional anchors like Macy’s, Nordstrom, and J.C. Penney. However, the grocery industry has undergone its own secular change. Amazon purchased Whole Foods, and within the last 18-months, regional grocers, such as Bi-Lo, Fairway Markets, Central Grocers, March Supermarkets, Gordy’s Markets, and Shaw’s, a unit of Albertson’s, have all experienced the stress of the industry’s secular changes. E-commerce and the emergence of new entrants, has changed consumer behavior. However, industry reports illustrate that over 85% of grocery shopping is still done in a traditional grocery store. According to an Inmar Willard report, the store count of traditional supermarkets will decline by about one-quarter by 2021. 
Food and beverage offerings will continue to play an important role, particularly fast casual concepts, but traditional branded food providers – such as McDonalds, Taco Bell, etc. – are expected to lose market share. Mall operators and retailers are catering to the Millennial and Gen X demographics. So look for an Orange Theory/Soul Cycle/insert-your-work-out-concept-here next to a Saladworks/Whole Foods/insert-locally-sourced-fresh-organic-food-provider-here, all located in a mall or mall-like concept.
Sensationalists tout the death of the American mall (photographer Seph Lawless has created a photo essay on Abandoned Malls).  However, the pain is idiosyncratic and regionally targeted.
It’s not an “all malls are created equal” world. The dispersion between A, B, C, and D-class malls might as well be worlds apart. A mall or mall-like concept in Manhattan, Los Angeles, or Chicago might be different from those in Birmingham, Jacksonville, or Memphis . According to Green Street Advisors, a class A mall might command well over $500 per square foot, while a class C mall might only garner $250. By most estimates, there are about 300 class A malls in America, and more than 700 class B, C and D malls. 
In an ironic example of how this sea change comes full circle, Amazon created a fulfillment center in Cleveland, Ohio, out of Cleveland’s former Randall Park Mall. Thanks to Amazon, it has been reported that 2,000 jobs were brought back to that community.
While predicting the future is not our intention, we anticipate an acceleration of these trends. With e-commerce accounting for approximately 10% of all retail sales, there is plenty more disruption ahead.
We hope that this holiday season, amongst the frenzied pace of the holidays and shopping, our readers can enjoy some of these musings. And, if you find yourself visiting a mall this week for last-minute gifts, parking might be easier.