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The Socioeconomic Impact of Shopping Mall Closings (Part 1)

Posted by Mary Barbour on March 26, 2017

The closing of several prominent retail chains, and even huge shopping centers, has become a problem in America over the last decade. Much of the customer traffic is shifting to online options, especially as stores improve the experience of shopping on mobile devices. That means that a crowded field of brick and mortar stores are taking a hit. It's impossible to ignore the impact that these monolithic store closings are having on local economies as well as the economy at large.  Some businesses will survive by restructuring their business to accommodate changing customer demands -- but as doors are closed, the loss of local jobs and tax revenue will have far-reaching impacts on infrastructure, investment, education and public safety. 

Anchor Tenants

One of the biggest ways that economies are being affected is by the closing of giant anchor tenants like J.C. Penney, Macy's and Sears. These "anchors" hold down a huge amount of real estate in shopping malls. They also draw a great amount of foot traffic to the shopping center, from which other, smaller retailers benefit. When they pack up and move out, the entire mall and surrounding town are heavily affected but it could also have broader implications on the economy.  

Broader Impact

RetailDive predicts "Penney's exit from so many struggling malls nationwide will serve to exacerbate an already tenuous position for those properties." The malls will continue to lose more tenants post-closing, and the reduced cash flow will make it difficult to make improvements to the malls and to draw in customers to the remaining stores.  According to RetailDive, the roughly 140 store closures announced by J.C. Penney in February of 2017 could impair some $30 billion in commercial mortgage-backed securities.Abandoned Cart.jpg

According to the New York Times, two dozen enclosed malls have been closed since 2010, and an additional 60 are on the brink. In the meantime, inventory is consolidated in newer, more experiential shopping in what are generally more affluent neihborhoods.  The displacement of tax dollars out of the communities that need them will undoubtedly have a ripple effect on middle-class.

Flourish or Fail?

Many malls will flourish in the years ahead, but communities need to work to manage the impact of losing those that don't. The industry may look back and realize that perhaps anchor tenants become too big to fail. Nearly 15 percent of malls are 10 to 40 percent vacant, and 3.4 percent are more than 40 percent empty - a frightening figure.

In part two of this three-part series, we'll take a deeper look at how struggling or closed malls affect the communities at large.

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Topics: Malls, Economy, Anchor stores, J.C. Penney, Macy's

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