Vacancies at U.S. regional malls rose to the highest level in at least a decade in the first quarter, a sign that landlords are struggling to keep tenants after the recession even as retail sales rise, Reis Inc. said.
The vacancy rate climbed to 9.1 percent from 8.9 percent a year earlier and 8.7 percent in the fourth quarter, the New York-based research firm said in a report today. It was the highest since Reis began publishing data on regional malls in the beginning of 2000.
An eight-month rise in U.S. retail sales has failed to spur increased mall occupancy, partly because of the amount of time it takes to structure long-term leases, said Victor Calanog, chief economist at Reis. The bankruptcy of Borders Group Inc., the second-biggest U.S. bookstore chain, and closings by Macy’s Inc., the No. 2 department store, also contributed to the vacancies, he said...
Some of the recent closings reflect the lingering impact of the recession. Retailers often decide to shut stores several months after a period of declining sales, and smaller businesses within a mall might close as overall traffic slows following the departure of an anchor tenant, Calanog said.Much of the mall vacancy rate can be attributed to frictional shifts, a normal process during the recession/recovery cycle. It will take time to assess this dynamic properly, since it will be several months before we can tell if the vacancies have begun to fill or not. But the mention of Borders in the article is not immaterial--the question now is whether there is something different this time around in the spike in vacancies, and whether the tenants will ever be coming back.
Borders, like so many retailers, has been continually squeezed by internet retail, and the recent recession was merely the straw that broke the camel's back. Other traditional retailers are struggling in similar fashions, and there is a definite question as to the long-term viability of large-inventory retail. A recent article from The Boston Globe focused on the closing of legendary Harvard Square stationery store Bob Slate, which succumbed to squeezing margins and falling sales after an 80-year run. Owner-manager Mallory Slate, who has managed the family business for nearly 40 years, had an interesting take on the matter.
“In the old days, I used to say, ‘This is a nuts-and-bolts store, we ain’t no boutique,’ ’’ Mallory said. “Now, we’re a boutique.’’
They had record years till 2001. Then online happened.
That last dynamic can't be understated. Increasingly, people are beginning to wonder if traditional retailers like Best Buy have become little more than showrooms for Amazon.com--people take a look at things, play around with them, then go buy them online at a discount. That's a nice free ride for Amazon, but it is absolutely devastating for the retailers. There's no way in the long run that Best Buy can price its goods competitively with Amazon when it has to pay huge commercial rent bills while Amazon does nothing. That's true of just about any brick-and-mortar retailer.“People spend an hour looking at every fountain pen we have, then they go home and buy it on the Internet,’’ Mallory said.
The question is, what happens for the consumer if and when all of the "showrooms" go out of business? Will they still shop online? Or do they in fact place a value on the ability to see, touch, and experiment with their products, a value that they will only fully realize once they no longer have the opportunity to do so?
As consumers, we often make choices that are perfectly rational in the short-run, but cause problems over the long run--problems whose impacts can't be easily reversed once we've gotten there. We shop at Wal-Mart because their products are inexpensive and of a reasonable quality, not fully appreciating that the cheap Chinese labor they rely on is devastating the U.S. manufacturing industry and harming the economy at large. We take advantage of Best Buy's kindness in letting us see their products, but realistically know that the more we buy on Amazon, the fewer Best Buys there will be.
I'm on record as being a huge Amazon fanboy, but I sometimes struggle with the implications of my decision to purchase so many of my products from them. I love Best Buy, too (and shop there occasionally when I need something immediately), and I'd be sad to see Amazon succeed entirely at its expense. But while I recognize this dynamic and try to strike the proper balance between the two, I also know that most consumers do not. And ultimately that could be bad news for retail (and shopping malls). As usual, only time will tell.
[Bloomberg]
[Boston Globe]
