US malls hunt for shoppers
Malls are going bankrupt across America but bargain-hunting investors are still buying into those which can secure prized anchor tenants and provide 'experiences' for the modern shopper. Joe Rennison reports from Hudson Valley mall in upstate New York.
Filmed and produced by Gregory Bobillot. Graphics by Joanna Kao. Additional filming by Donell Newkirk. Aerial shots: Getty
It's no secret that malls in America are struggling. With retail space in the US having expanded to a scale unrivalled by anywhere else in the world, changing consumer spending habits and the rise of e-commerce has pushed the trend in more recent years towards store closures. And that means less rental income for mall owners.
Behind me is Hudson Valley Mall, a quiet, half-empty example of a story now familiar across the United States, a once thriving regional mall that has come under pressure from the closure of big-name stores. The storefront that you can see behind me used to belong to JC Penney before it vacated the premises in 2015. Macy's, another big tenant for Hudson Valley, left in 2016. The closure of these so-called anchor tenants is so damaging for regional malls not only because of the loss of rental income, but also because it diminishes the attractiveness of sticking around for smaller, regional mom-and-pop stores.
Credit Suisse estimates that as many as 8,640 stores with 147 million square feet of retailing space could close down just this year. That would surpass previous peaks after the financial crisis and dot-com boom. The effect can also be seen in employment numbers. Even with the robust jobs market, retail jobs have declined by an average of 6,000 per month this year, according to the Bureau of Labour Statistics. And S&P Global notes that the number of retailers going bankrupt has accelerated from last year.
Now we don't only have one or two announcements from major operators with store closures, we've got multiple anchors, just even recently, making those announcements. So on a case-by-case basis, you're going to have properties that now the operator is dealing with two major anchor closures, and the impacts on other tenants at that property can be pretty severe. Whether or not their operations get affected by this, time will tell. But that's something that folks will have to pay attention to.
For Hudson Valley, it contributed to the mall defaulting on its mortgage last year. That default not only hurt the mall but also investors that had funded it. The retail sector is one of the largest in so-called commercial mortgage-backed securities. But that's changing as more properties like Hudson Valley default and investors become wary of lending to retail property owners.
When the residential mortgage crisis in 2008 hit, its effects were swift and dramatic. But investors expect retail to see a much slower decline, offering fewer prospects to profit from its demise or bet on possible pockets of resurgence.
Hudson Valley's story began in the 1980s. The mall arrived during the good times. But when the town's main employer, IBM, left in the 1990s, it took with it many of its younger workers, leaving behind an older population, many of whom took early retirement.
Community's faced with a changing demographic due to the departure of a major employer about 25 years ago. If you roll forward the 2010 census to 2017, over 50% of the town's population are over the age of 50. And if you understand the life cycle of spending, over age 50, you've already had family formation, and discretionary purchases are not a high priority. So when you look at the retail model where the anchor stores are designed to draw the traffic, and the mid-market national retailers and the mom-and-pop stores live off that traffic, as the traffic decreased from the majors, the anchors, the balance of the malls' sales suffered from the lack of traffic.
Having bought the property at a depressed price, new owners Hull Property Group, based all the way in Augusta, Georgia, have negotiated a lower tax assessment on the mall. But that in turn has reduced the tax income for the town. But Hull Property Group says it allows them to begin investment in Hudson Valley, hoping to stabilise the outflow of tenants before seeking ways to attract new ones-- possibly turning to more experience-oriented businesses like restaurants to complement traditional bricks-and-mortar stores, a move echoed elsewhere across the country as regional malls tend to evolve in line with consumer trends.
Some large retailers do still remain at Hudson Valley, but the names emblazoned on the sign behind me just off the main road are still those of struggling big box retailers like Sears and Target. Under new ownership, the mall is fighting for survival at a time of structural shift in the retail industry and the makeup of the American mall.
But there is hope. A new mega-mall in New Jersey recently received funding from investors showing they are still willing to support some retail development. And Amazon's acquisition of Whole Foods, and the floorspace that comes with it, shows even those at the forefront of disrupting the retail industry see value in physical shops. Joe Rennison, Financial Times, in Ulster County, New York.