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The Demise of Shopping Malls

by on June 09, 2019 5:00 AM

 

When I was young (yep, that saying makes me feel incredibly old), we hung out at the mall. There is no better way of saying it. Teenagers would call each other on phones connected to the wall (I feel old again) and meet up at their local mall. Living in Delmont, near Pittsburgh, I had two malls nearby: the Westmoreland Mall and Greengate Mall. Westmoreland is still going strong and Greengate is closed. The cool mall, Monroeville Mall, that I only got to go to on occasion, has recently been the center of several shootings. It was also the location for the 1978 George Romero zombie movie “Dawn of the Dead.” Our Nittany Mall still exists, but I really can’t tell you the last time I went into it.

With the advent of the internet, brick and mortar stores faced trouble. Bookstores and record stores (yes, before you ask, I did have a record player and a cassette player growing up) were the first to feel the pinch. Napster provided a free online peer-to-peer place to share music, which was found to be copyright infringement (it was fine when someone did it tape-to-tape in the comfort of their home; however, on a wide scale, it really bit into profits). Napster was shut down in 2001. Napster did pave the way for streaming media sources, like Pandora [now owned by Sirius XM Satellite Radio (SIRI)], Amazon Music, Spotify and iHeartRadio. Amazon (AMZN) started with a simple concept, an online bookstore, and went public in 1997. Amazon has morphed into an online superstore, cloud computing giant and can control your lights with Echo and Alexa. Amazon is also reportedly the largest U.S. apparel retailer now.

As more consumers became comfortable with online commerce, merchants expanded to online. Even smaller businesses can expand worldwide with the help of Etsy and Amazon. As online commerce continues to grow and expectations rise, storefronts find it harder to compete. Discount retailers also play a part in the decline of the shopping mall. Standalone discounters, TJX Companies (TJX) and Ross (ROST) put a dent in mall traffic but are also hurting from online competition.

This leads us to the demise of the mall. The recent retail earnings season was a tough one and the retailers with the worst results are from mall-based stores. Abercrombie & Fitch (ANF) dropped 26%, J Jill (JILL) dropped 53% and Gap (GPS) stock dropped 9% on their worst days, which happened to be in May. Traditional mall anchor stores have been hurting, most noticeably, Sears (SHLDQ) and JC Penney (JCP), which currently trade under $1 — and that doesn’t look like a bargain. Macy’s (M) is the one anchor store that is surviving with 637 Macy’s and 38 Bloomingdale’s. Its presence in top tier malls and expansion into the beauty and spa space with its Bluemercury chain help it to remain relevant. To help its brand, Urban Outfitters (URBN) is turning to clothing rental with a new business called Nuuly.

Convenience is key in today’s retail world. Why drive to a mall if you can easily find what you need in the comfort of your own home or on the run? Mobile eCommerce is the future of retail. Seventy-seven percent of Americans own a smartphone and 79% of smartphone users have made a purchase online using their mobile device. To remain relevant, retailers must have a mobile-friendly site. A perfect example of this was my morning purchase. I realized I needed kitty litter as quickly as possible. It was 6 a.m. and with a full day ahead of me, I jumped onto my phone, and within four clicks, I had my kitty litter arriving the next day from Amazon.

As with any business area, retail continues to change with online, customization, rental and new players daily. Malls are feeling the pain, and many are no longer a destination for American shoppers. The best will prevail, and the rest will, well, turn into casinos, apartment buildings and one has even become a Google office in California.

Disclaimer:  Nothing contained in this article should be interpreted as a promise or guarantee of earnings or investment results nor a recommendation for the purchase or sale of any security or sector.

 



Judy Loy, ChFCâ, is a Registered Investment Advisor and CEO at Nestlerode & Loy Investment Advisors, State College, Pa. A graduate of Penn State University, Loy has been with the firm since 1992, assisting clients with retirement planning, brokerage services and investment advice. She can be reached at [email protected]
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