Shopping center landlords, investors and brokers have been pushing against the narrative that e-commerce – and Amazon.com in particular – is behind the so-called "retail apocalypse." Speakers at the International Councils of Shopping Center’s big trade show in Las Vegas last month provided ammunition for that argument.
In a session discussing how store closings were contributing to a healing retail industry, Suzanne Mulvee, director of research for CoStar Group, contended that years of unbridled expansion, demographic changes and stagnant wage growth were the primary culprits for the retail industry's woes. In another session that was half history lesson and half training on how to lease difficult spaces, Nick Egelanian, president of SiteWorks Retail Real Estate Services, pointed out that “electronic shopping & mail order” channels accounted for 9% of retail sales in 2017. But a break down of that figure revealed “pure play” e-commerce retailers contributed only 3.7% of those sales. And Amazon.com? It made up less than 1% of e-commerce sales.
“There’s a perception that Amazon is taking over the retail world, but Amazon and e-commerce have very little to do with what’s going on,” Egelanian told his audience. “How retail works in the U.S. today is very different than what many of you have come to believe.”
The forces disrupting retail took root 40 years ago and then morphed into a perfect storm that culminated with the Great Recession, Egelanian and Mulvee said. Here's where they place the blame:
Commodity Retail
Originally department stores served as downtown shopping hubs that offered a wide range of products, including fine china, auto supplies, housewares, apparel, toys and linens. As the automobile fueled suburban growth, department stores followed and at one time anchored some 3,000 malls. But around 1988, retail executives launched category killers in big boxes that specialized in one product line, which effectively deconstructed and doomed the department store, Egelanian said. Worse, the same real estate developers of department store-anchored malls cannibalized their business by building big box-anchored power centers, he added.
Oversupply
On average, developers built around 160 million square feet of retail space a year from 1984 to 2008, outstripping population growth. Over that time, the amount of retail space per capita in the U.S. grew to 55 square feet from less than 45 square feet, Mulvee said.
Demographics And Income
In the early 1980s, baby boomers were entering the peak earning-and-spending age range of 35 to 54, fueling the development wave. But the buying began slowing in 2001 as the cohort began aging beyond those prime years, and the following generation didn't have the numbers to fill the gap. At the same time, median income began to flatten. From 2001 to 2013, publicly traded retailers saw store sales plunge from nearly $425 per square foot to about $310 per square foot, Mulvee said.
Retailers are still riding out the turbulence. With some 95 million square feet of store closures already announced this year, it’s a good bet that 2018 will surpass the 105 million square feet of closings last year, Mulvee said. (Indeed, Mulvee cited this year's closings figure just days before Sears Holdings Corp. announced that it would shutter 63 Sears and Kmart stores in 2018.) The number of malls has fallen to 1,000 from 3,000, and 800 more will vanish in the next decade, Egelanian predicted.
Nevertheless, Egelanian and Mulvee were cautiously upbeat about the future of shopping centers as developers and retailers adjust to the new paradigm. New development plummeted when the Great Recession hit, and although it has rebounded since, it is still far below the previous high levels. Publicly traded retailers have seen their sales creep up since bottoming in 2013. In particular, retailers that have closed stores over the last several years, including The Children’s Place, Best Buy Co. and Gap, are witnessing a strong rebound in same store sales growth, Mulvee said. Meanwhile, millennials are reaching their prime earning years, and low unemployment is beginning to foster average annual wage growth of about 4%, an improvement over the last several years, she added.
