Search the term “enclosed malls” on Google, and two-thirds of the first page of results are links to stories and columns that speculate about the demise of the traditional indoor shopping center, which turned 62 this year.
“A dying breed: The American mall,” reads one result linking to a CBS News story.
“The death of the enclosed mall,” reads another from Mother Jones magazine.
But industry officials said a lot of the stories are “overblown” and focus on the “bottom 10 percent” of enclosed malls.
“The majority of stock is healthy,” said Jesse Tron, a spokesman for the International Council of Shopping Centers, a New York-based trade group that represents 67,000 mall and shopping center owners, retail real estate officials and retailers. He said that more than 93 percent of enclosed malls are outperforming the entire stock of retail centers, according to data from ICSC.
The problem is there are hundreds of these hulking, gray boxes dotting cities across the country that have been shuttered in recent decades, made obsolete over time by competing open-air lifestyle centers, big box retailers with stand-alone stores, dwindling numbers of department store chains, recession and online retailers.
Some of the structures have been converted to office and health care centers, such as the former Wichita Mall at 4301 E. Harry.
So far, Wichita’s two biggest enclosed malls are still viable operations. But that doesn’t mean there aren’t challenges ahead.
Towne West Square, the 941,000-square-foot mall at Kellogg and West owned by Simon Property Group spin-off Washington Prime Group, is facing the departure of Sears, one of four anchor tenants. The others are Dillard’s, Dick’s Sporting Goods and Movie Machine, according to Simon.
The struggling department store chain announced last month that it would close the store and auto center at Towne West in early December, affecting 103 jobs.
Sears’ pending departure comes on top of figures published by Simon in March that show Towne West had an 83 percent occupancy rate. Simon said in its 2013 annual report that Towne East Square, at Kellogg and Rock and with 1.1 million square feet, had a 98 percent occupancy rate.
Towne West earlier this year was one of 44 enclosed malls and 54 strip centers that Simon spun off into Washington Prime, a publicly traded real estate investment trust. Also included in the spin-off were West Ridge Mall and West Ridge Plaza, both in Topeka.
Simon announced those plans in December and completed the spin-off in late May. The primary reason for the spin-off, Simon said at the time, was to concentrate its efforts on its 115 larger malls and 79 other “premium” outlets and centers.
A Simon official said this week that the spin-off shouldn’t be viewed as the company shedding underperforming properties.
“I think it’s just a size issue,” said Les Morris, a spokesman for Simon in Indianapolis. “As I noted, they’re just a different class of center, not in the quality sense, just in the size and scope. They are really good properties. There’s a lot of value there. I think that is the wrong orientation.”
Jeff Donnelly, an analyst at Wells Fargo Securities who covers Simon, sees the reasons for the spin-off a little differently.
The spin-off does allow Simon to focus spending what capital it does have on updating and expanding its larger properties. He said when Simon’s smaller properties needed capital for updates and renovations, they likely were beat out by Simon’s “larger, more valuable mall properties.”
Separating the two “also serves the purpose of separating the lower productivity, lower-value assets from Simon’s strongest assets,” Donnelly said.
He said the valuation of Simon’s strongest properties was probably hampered by the investment market because of its perception about “the viability of smaller, less productive malls typically found in smaller cities, particularly given the question marks around Sears’ and JC Penney’s financial health.”
“The root issue is that retailer demand for smaller markets is less robust, particularly among the large traditional anchor stores,” Donnelly said. “I suspect the concern is that in the next decade, there will be more fallout in the small-market malls as more sales shift online and retailers rationalize their store counts to maximize profit rather than maximize sales.”
James Shanahan, an analyst at Edward Jones in St. Louis, said he thinks the spin-off would be positive for Simon and Washington Prime.
“I like this deal for Simon Property,” Shanahan said. “It enabled them to focus on larger malls in larger markets where they perceived the productivity was better and where they perceived the growth was better.”
For the properties within Washington Prime, he thinks they will get more attention from the management team who “with a focused effort can figure out a way to improve productivity and sales profits of those smaller properties.”
“These were more stable, steady-Eddie-type properties that were contributing” income to Simon but only a fraction of Simon’s total income, Shanahan said.
“I think ultimately it’s a win for Washington Prime and that portfolio,” he said.
Morris, of Simon, couldn’t say what the plans might be to fill the space that Sears will be vacating at Towne West.
Tron, of the shopping center group, said that since the recession, malls have been more “flexible and creative” in ways to repurpose vacated space in their properties.
When anchor tenants leave, malls have divvied up the vacated space to accommodate multiple retail tenants. Some also have literally taken the roof off and redeveloped the space into an outdoor village setting, he said.
Tron said the trend for malls also is to recruit nontraditional mall tenants. Instead of retailers, he said, some malls have been successful in recruiting fitness centers, medical offices and specialty grocers to fill the large spaces vacated by department stores.
“We don’t need to necessarily have that traditional anchor,” he said.