Retail Insights

Ghost Malls: Creative Destruction

ghostmallsIn the horror story of the declining fortunes of the American shopping center, the central character is the “Ghost Mall” – abandoned, forlorn, and lifeless — but looming, casting a post-apocalyptic pall over the American Dream. The website, DeadMalls.com, provides ample evidence that ghost malls are real and that they appear to be a growing insidious blight across America. The eerie photos show boarded-up entrances, broken glass, empty storefronts and hulking monolithic edifices surrounded by desolate unkempt parking lots. Hollywood even used a ghost mall to symbolize menace and hopelessness in last year’s psychological thriller “Gone Girl.”

Frightened yet? Well don’t be. In a country with an astounding 23 square feet of shopping mall space for every man, woman and child – representing almost 70% of the world’s supply — it should come as no surprise that some obsolescence and creative destruction is inevitable…even desirable.

Over the next 10 years it is estimated that between 10% and 15% of existing malls in the U.S. will be redeveloped or closed. On the surface this seems dire, but it is an obsolescence rate of only around 1% per year. Also consider that an estimated 760 new malls will open in the next three years through 2016, adding almost 2% to America’s abundant mall inventory. Despite the hand wringing, the American mall is not experiencing a seismic shift, but instead by a process of natural selection, is going through a healthy evolution to a state better adapted to a changing world. Some might even say, “not fast enough.”

Many malls will not be able to adapt to the numerous external demands. Those destined to join the netherworld of ghost malls will succumb to some combination of the effects of demographic shifts, lifestyle preference changes, competition from other distribution channels and an increasing demand for higher quality retail environments. Broad economic changes – like the diverging trends in stratified income growth – threaten the middle class, and therefore the malls that cater to this crucial group. Some malls are also dying from the inside out burdened with lackluster tenants like Sears and JC Penney that struggle to remain relevant to consumers.

A mall is ultimately only as good as its tenants. The retailers that create a desirable offering will continue to be the engine of success for American malls. The design of shopping centers however also has an important role to play, and many ghost malls with their low ceilings, inadequate natural light and monolithic exteriors offer lessons worth learning from. The design of most of these ghost malls can best be described as functional and bland. Developed in an era of rapid expansion, it was not considered a competitive advantage to enhance the customer experience through mall design – and it shows.

As the landscape became saturated and the supply of shopping centers began to exceed demand, the quality of the retail environment, and therefore “Design,” finally became a competitive advantage. This has provided a great benefit to consumers who are now wooed with a variety of retail experiences specifically designed to delight and charm them. Two distinct approaches to shopping center design have emerged, and in many ways, they occupy opposite ends of a spectrum.

On one end of the spectrum is Los Angeles developer Rick Caruso’s “Back to the Future” developments like The Grove and The Americana at Brand. Inspired by the traditional town centers that rampant suburban mall development helped destroy half a century ago, Caruso’s community shopping centers attract tens of millions of visitors each year. With their town greens, ample landscaping and human-scaled traditional architecture, they offer a compelling vision that is familiar, comfortable and reassuring. If these retail centers were only a little less pastiche and had a little more design integrity, they would be truly timeless. One of the best hopes for immortality is design integrity; it offers one of the authentic forms of immunity against becoming a ghost.

At the other end of the spectrum is the “Brave New World” of visually arresting modern architectural extravaganzas epitomized by architect Daniel Libeskind’s CityCenter in Las Vegas and Santiago Calatrava’s spectacular transit hub and shopping center at New York’s World Trade Center. Instead of being “familiar, comfortable and reassuring,” these avant-garde architectural fantasies are original, exciting, and brazen. Their larger-than-life scale and dynamic geometries can be unsettling as well as uplifting, even inspirational.

At both ends of the spectrum we are moved and made more alive by the power of design.

However, the vast majority of malls, living and ghosts, have shops uniformly stacked shoulder-to-shoulder on either side of a bland central corridor. They follow this format, not because they are inherently appealing to shoppers or retailers, but because they are efficient for developers to build, operate and lease.

Shopping center behemoth, Simon Property’s hostile bid for Macerich, is also driven by a desire to realize operating efficiencies, but moreover, to increase its negotiating power with retailers. If the $16B bid is successful, it will further consolidate the already heavily consolidated shopping center industry in America. This may not bode well for consumers or retailers. High quality design, and the myriad other consumer benefits born through innovation and creative destruction, depend on a fiery crucible of competition. Simon’s bid, if successful, will surely turn down the heat

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