Closing Shop: Changes at the mall aren’t necessarily a result of online shopping

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NORFOLK, Va. (WAVY) — If it feels like more and more stores are deciding to leave your favorite shopping mall, you’d be right.

In the third quarter of 2018, the national mall vacancy rate topped out at a five-year high of 9.1 percent, according to the Reis Retail Sector pre-release fourth quarter analysis.

The report placed the blame on a high number of Sears stores closings, two of which were in Hampton Roads

Also soon closing is the region’s only Nordstrom store, one of two anchor stores at Norfolk’s MacArthur Center. 

“The era of the department stores as an anchor to malls is largely over,” said Nick Egelanian, founder of SiteWorks Retail Real Estate.

Egelanian has spent nearly three decades studying retail and mixed-use development in order to  consult retailers, developers, owners and municipalities. 

He believes the fall of the department stores like Macy’s, J.C. Penney, Dillards and others are significant in the story of malls.

“That industry was the equivalent to Walmart in its heyday,” Egelanian said. “It probably accounted for $300 billion to $400 billion of annual retail sales in today’s dollars. It’s down to $60 billion today … we once had 3,000 malls in the United States. We are down to under 1,000.”

But what is killing them is not what you might expect.

“Is internet killing brick and mortar retail? No!” Egelanian said. “Catalogs topped out in their heyday at 11.5 percent. So we are below where catalogs topped out in the early 1990s.”

Online sales made up 9.9 percent of total retail sales in the 4th quarter in 2018, according to estimates from the U.S. Department of Commerce. 

Rather, Egelanian points to overdevelopment as a large factor in the shopping mall downfall.

“Retail space was probably growing 5 times the rate of population growth from 1985 to 2010,” Egelanian explained. “There is only so many that can serve a whole region. So yes, it’s very common for these [different malls] to grow in and out of success.”

Most of the 3,000 malls built between 1965-1985 were built to serve between 250,000 to 350,000 people, according to Egelanian.

Currently there are seven traditional malls left in the Hampton Roads region:

  • Patrick Henry Mall in Newport News
  • Chesapeake Square Mall in Chesapeake
  • Greenbrier Mall in Chesapeake
  • MacArthur Center in Norfolk
  • Military Circle Mall in Norfolk
  • Pembroke Mall in Virginia Beach
  • Lynnhaven Mall in Virginia Beach

Not including the Peninsula’s Patrick Henry, you can successfully travel from one mall to another within 10 miles.  

“The Hampton Roads area is unique because of its geography. Its dependence on the military and commissaries that are associated with it,” Egelanian points out. 

Yet, Egelanian said the dismantling of the traditional department store also can be credited with its overall demise. 

“We literally took the linens department and built Bed Bath and Beyond,” Egelanian said. “We took the electronics department and built Best Buy.”

Last year’s 4th quarter vacancy rate for neighborhood and community shopping centers was 10.2 percent, according to the Reis Retail Sector report.

“So what you are seeing happening at the very same time is: You see internet replacing catalogs. You are seeing the natural end of the life cycle of malls, most malls. And you are seeing the natural end of the growth cycle of most strip centers. It makes people think the world’s coming to an end, when in fact it’s just normalizing, it’s just becoming a mature industry,” Egelanian said.

He believes the road ahead could still be bumpy for Hampton Roads’ 7 existing malls. Five of them currently have one or more vacant anchor stores.

“There will probably one that survives,” Egelanian said. “It may or not be the same that it is today, but there will probably be one.”

Virginia Beach’s Lynnhaven Mall is the one Egelanian believes will see success longterm, because of its effort to get tenants like Dave & Buster’s that bring a different experience.

“The kind of retail that would be successful in the future would be that that has a large entertainment component. That is put in the right place and done the right way,” Egelanian said. “If you are going to have a department store that is going to be a successful anchor to the mall, it’s going to have to be a higher-end one that can generate the revenue. So without a Nordstrom being successful in the market, I don’t see any model that saves the mall itself.”

Jim Wofford, General Manager of MacArthur Center in Norfolk believes his mall will survive without the anchor store “by being relevant.”

“Our mix of stores have pretty much remained the same,” Wofford said. “But what we are doing is taking and transitioning to more experiences like our Live 360 Program.”

Live 360, which launched in Fall 2017, is a community-led program that allows guests to use three former retail spaces in order to host classes, meetings, play games or watch sports, all free of charge.

“People come in, just to enjoy the atmosphere,” Wofford said.

Wofford wouldn’t comment on Nordstrom’s impending departure or the mall’s vacancy rate.

“We are right downtown, people want us here. I think we are going to be here for a long time,” Wofford said. 

MacArthur Center, owned by Starwood Retail Partners, isn’t the only mall ownership group looking to adapt to survive.

“We are making significant progress on our strategic priority of transforming our properties into suburban town centers, while at the same time limiting our cash investment,” CBL Properties, owner of Greenbrier Mall, told its investors in its annual report. 

The City’s Commissioner of the Revenue Office reports that the number of business licenses terminated from January 1, 2018-March 1, 2018 are:

  • Chesapeake Square Mall in Chesapeake: 15
  • Greenbrier Mall in Chesapeake: 19
  • MacArthur Center in Norfolk: 22
  • Military Circle Mall in Norfolk: 13
  • *Pembroke Mall in Virginia Beach: 24 
  • *Lynnhaven Mall in Virginia Beach: 43

* These lists, which include licenses that have been terminated, were provided by the City of Virginia Beach deputy Commissioner of Revenue, who said the businesses assigned may still be under operation under another license. The deputy Commissioner of Revenue told 10 On Your Side “if any businesses have an issue please have them contact our office.”

Newport News had not fulfilled a Freedom of Information Act request by the time of publication.

It is important to note other stores did open up for business during the same time period. Click on the following links to see the raw numbers:

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