New Main Street

06.07.15 4:01 AM ET

Mall's Washed Up? Not Quite Yet

The conventional wisdom wrote off the shopping mall long ago, but while no one was looking, the reinvented mall succeeded in attracting new urban and ethnic clienteles.

Maybe it’s that reporters don’t like malls. After all they tend to be young, highly urban, single, and highly educated, not the key demographic at your local Macy’s, much less H&M.

But for years now, the conventional wisdom in the media is that the mall—particularly in the suburbs—is doomed. Here a typical sample from The Guardian: “Once-proud visions of suburban utopia are left to rot as online shopping and the resurgence of city centers make malls increasingly irrelevant to young people.”

To be sure, there are hundreds of outmoded malls, long-in-the-tooth complexes most commonly found in working-class suburbs and inner-ring city neighborhoods. Some will never come back. By some estimates, something close to 10 to 15 percent of the country’s estimated 1,000 malls will go out of business over the next decade; many of them are located in areas where budgets have been very tight, with locals tending to shop at “power centers” built around low-end discounters such as Target or Walmart.

But the notion that Americans don’t like malls anymore is misleading. The roughly 400 malls that service more-affluent communities—like those typically anchored by a Bloomingdale’s or Nordstrom—recovered most quickly from the recession, and now appear to be doing quite well.

To suggest malls are dead based on failure in failed places would be like suggesting that the manifest shortcomings of Baltimore or Buffalo means urban centers are not doing well. Like cities, not all malls are alike.

Looking across the entire landscape, it’s clear the mall is transforming itself to meet the needs of a changing society but is hardly in its death throes. Last year, vacancy rates in malls flattened for the first time since the recession. The gains from e-commerce—6.5 percent of sales last year, up from 3.5 percent in 2010—has had an effect, but bricks and mortar still constitutes upwards of 90 percent of sales. There’s still little new construction, roughly one-seventh what it was in 2006, but that’s roughly twice that in 2010.

Shopping in stores, according to a recent study from A.T. Kearney, is preferred over online-only by every age group, including, most surprisingly, millennials, although many of them research on the web, then visit the store, and sometimes then order on line. The malls that are flourishing tend to be newer or retrofitted and are pitched at expanding demographic markets. These “cathedrals of commerce” in the past tended to reflect the mass sameness of mid-century America; those in the future focus on distinct niches—ethnic, income, even geographical—that are not only viable but highly profitable.

This leaves us with a tale of two kinds of malls. One clear dividing line is customer base. In the ’80s and before, malls succeeded fairly universally, notes Houston investor Blake Tartt. But now it’s a matter of being in the right place. “Everything has changed and you have to be with the right demographics,” he suggests. “It’s not so much about the mall but the location that matters.”

Old malls in declining areas, notes a recent analysis by the consultancy Costar, do truly face a “bleak future” and should look to be converted into apartments, houses, corporate headquarters, or churches.

In contrast, affluent urban areas are becoming an unexpected hotspot for malls—even outlet malls are opening open in the urban core. You now see gigantic malls in places like Manhattan: the Shops on Columbus mall in Manhattan, the world’s fifth-most profitable mall, looks inside like it was teleported from Orange County, California, or, god forbid, Long Island.

This is not unusual across the world. Malls are on the march in many of the world’s biggest cities, including Istanbul, Mumbai, Singapore, and Dubai. Today Asia is the site of seven of the world’s 10 largest malls, in places like Beijing, Dubai, and Kuala Lumpur.

In the developing world, malls grow as local shopping streets either gentrify or decay. This is particularly true in fast-growing developing countries where malls are often seen as an escape from hot, humid, dirty and even dangerous urban environments. Indian novelist and Mumbai blogger Amit Varma suggests that these folks like malls “because they are relatively clean and sanitized” as opposed to the city’s pollution-choked, beggar-ridden and often foul-smelling streets.

Ethnic Malls

Within the U.S., demographic change is creating opportunities for a new breed of mall-maker. Across the country, savvy investors and developers have been buying older malls, which tended to serve either Anglo or African-American customers, and shifting them instead to focus on fast-growing ethnic markets. Such malls can now be found in traditional Latino areas such as Southern California and Texas, but they also exist in Atlanta, Las Vegas, Oklahoma City, and Charlotte, places that have recently become major hubs for immigrants.

“We had a terrific recession,” notes Los Angeles-based mall maven Jose Legaspi, who has developed 12 such malls around the country. “You do well if you target specific niches that are growing. You can’t make it with a plain vanilla mall. We are creating in these places a Hispanic downtown.”

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Fort Worth’s 1.2 million-square-foot La Gran Plaza, which Legaspi manages, epitomizes the advantages of such marketing. When investor Andrew Segal bought the mall in 2005, it was a failing facility that primarily serviced a working-class Anglo population. Barely 15 percent of the mall’s tenants were both open and paying rent.

Segal quickly recognized that the area around the mall—like much of urban Texas—was becoming more diverse, in this case largely Latino.

Segal and Legaspi redid the once prototypical plain vanilla mall to look more like a Northern Mexican town plaza, a design pattern developed by Los Angeles architect David Hidalgo. Latino customers are drawn to amenities like large and comfortable family bathrooms, an anchor supermarket, mariachi music shows, and even Catholic masses. There is also a “swap meet” that accommodates small vendors, something that Legaspi sees as essential to creating “a carnival of retail experiences.” By 2008, when the face-lift was complete, the mall achieved 90 percent occupancy. Today La Gran Plaza is effectively “full,” says Segal, who is considering a further expansion of the mall.

The viability of ethnic malls in hard times demonstrated their viability in better ones. When Dr. Alethea Hsu opened her Diamond Jamboree Center in Irvine, California, the state was reeling from the recession. Yet from the time she opened in 2008, her mall, which focuses on Orange County’s large and expanding Asian population, has been fully occupied. It includes various realty offices, hair salons, medical offices, a Korean supermarket, and a small Japanese department store, all primarily aimed at a diverse set of Asian customers. The biggest problem—for those interested in choosing among various kinds of Chinese, Vietnamese, Korean, or Japanese cuisine—is not that it’s deserted but that it’s often difficult to get a parking space.

Be sure of this: The ethnic mall is no flash in the pan, at least as long as immigrants pour into this country. By 2000, one in five American children already were the progeny of immigrants, mostly Asian or Latino; today they make up as much as one-third of American kids. These kids, and their own offspring, not to mention Anglo or African-American friends, have been brought up with food and fashion tastes that often originate in Mexico, Taiwan, Japan, Korea, or China. When I was a kid growing up in New York, you went to Chinatown or Little Italy for an ethnic infusion. Now you get in your car, park, and get options not so dissimilar than what you would find—usually in a mall—in Mexico City, Mumbai, or Singapore.

The World According to Rick

For most of America, says Los Angeles developer Rick Caruso, the future lies in replicating the function that Main Street once served. Rather than simply a center for instant consumption and transactions, the mall is a social meeting point, says Caruso, who has 10 developments under his belt. To make it all work means adding often unconventional amenities such as live entertainment or the lighting of Christmas trees and the Chanukah menorah.

This is part of a broader mall trend in which developers see their properities as community and entertainment centers, an approach adopted now by mainstream mall developers such as Westfield, whose projects are increasingly open-air and built around amenities such as health clubs and trendy restaurants and cafes.

The ultimate example may be the Caruso-owned Grove, a giant open-air mall that lies next to the Farmers’ Market, one of the oldest and beloved shopping areas in Los Angeles. The world’s eighth-most profitable mall, the Grove is laid out like a Disneyesque Main Street and is particularly appealing to families and tourists. Overall, the Grove now ranks among L.A.’s leading tourist attractions. This reflects both the development’s pleasant, pedestrian-oriented design as well as proximity to the Farmer’s Market, which remains, as has been traditional, largely a collection of small, idiosyncratic stalls.

A sense of place is what makes the Grove—and, to a lesser extent, Caruso’s other developments—work. Located in the Miracle Mile district of L.A., it attracts a huge urban population that includes old Jewish shoppers from the immediate area as well as the growing ranks of hipsters, tourists, and the rest of the vast diversity that is Los Angeles. Caruso’s other centers, like the Commons in suburban Calabasas and The Promenade in Westlake, may lack global appeal but they succeed as anchors of their communities. Without developed, large historic downtowns, these communities still need a central place, and for them, the malls, however imperfectly, come closest to delivering it.

In today’s environment, Caruso suggests, a mall has to offer something that online retailers, power centers, or catalogs cannot provide: a social experience. “You have to differentiate yours, offer a place for people to gather for holidays. People are yearning for a place to connect with each other. We are not building just town centers, but the centers of towns.”

Ironically these malls are fulfilling a role that some urbanists have denounced the suburbs for lacking. “What do most urbanists want?,” asks David Levinson, director of the Networks, Economics, and Urban Systems Research Group. “A lively, pedestrian realm, clean, free of automobiles, with a variety of activities, the ability to interact with others and randomly encounter friends and acquaintances. This is what the shopping mall gives.”

The New Town Center: With Suburban Revival, New Hope for Malls

The notion of dead malls has been connected to a similar idea about the inevitable demise of the suburbs, which appeared possible at the height of the recession, but has since been shown to be largely false. Suburbs may not be booming as in the ’90s, but they are now growing as fast as core cities, and constitute more than 70 percent of all new population and 80 percent of new job growth since 2010.

Surprisingly, the most recent numbers suggest that the outer suburbs and exurbs, once consigned to Hades by the new urbanist crowd, have begun to roar back. Millennials, as they get older, notes Jed Kolko, now seem to be moving to what he calls “the suburbiest” areas farther out on the periphery. 

It is in these areas that malls may have their greatest future. In communities like Irvine, where the Spectrum development has become the de facto downtown, or Sugar Land, a highly diverse outer suburb of Houston, the “town center” is essentially a mall in brick, made to look like an old Main Street but filled with chain stores and specialty restaurants. Many residents of fast-growing communities like Sugar Land, which has 83,000 residents, are relative newcomers, and for them such town centers are the focus of their communities.

It is time to dispense with the twin memes of mall- and suburb-bashing, and begin appreciating and improving how most Americans live and shop. The malls of the future indeed may be very different in many ways—more segmented by income and ethnicity, more entertainment- and experience-oriented. But they will continue to serve an important focus for most American communities. And at a time when many of our most celebrated cities have themselves become giant malls (is there any place on Earth more boring than the area around Times Square?), the future of malls may prove brighter, and even more transformative, than commonly imagined.

Joel Kotkin is the RC Hobbs Fellow in Urban Studies at Chapman University and director of the Houston-based Center for Opportunity Urbanism. Chapman University graduate Haley Wragg helped with the research.