Regional malls across the country are dying. Delaware's could be in jeopardy
As she exits the Boscov's at the Dover Mall, Edith Moyer uses one hand to situate her mask above her nose as the other clutches a large plastic shopping bag by her side.
Moyer does most of her shopping in-person — she likes to try on clothes and feel their texture, and she doesn't like the hassle of mailing items back. She has persisted through the pandemic, browsing for anniversary and birthday gifts while abiding by the mask requirements and social distancing markers of COVID-19 shopping.
But soon, the pandemic could render even this amended mall experience defunct. In the coming years, hundreds of America's roughly 1,100 malls are expected to shut down, the result of yearslong growth in online commerce combined with COVID-19.
Those most at risk are lower-level malls that have lost anchoring department stores like Sears, Macy's and J.C. Penney. Experts say only a small number of booming "super regional" centers will remain, while hundreds of "B-level" malls will need to find a new use.
The dichotomy of Delaware's shopping malls — the Dover Mall on Route 13, the Christiana Mall near I-95 south of Wilmington and the Concord Mall on Route 202 near the state's northern border — matches this nationwide trend.
Moyer, a 65-year-old Wilmington resident, has shopped at all three. When asked how the Dover Mall compares with the Christiana Mall, northern Delaware's tax-free shopping mecca, Moyer chuckles.
The Christiana Mall has thrived since undergoing a significant overhaul about 10 years ago, which added draws like Target, Nordstrom, Cabela's and a Cinemark movie theater. The mall regularly cycles in new stores to replace those out of trend and has consistent traffic-generating anchors.
Meanwhile, the Concord and Dover malls have been mired in financial issues having each lost at least one anchor tenant and several specialty stores. Neither has made significant upgrades since the turn of the century.
Facing foreclosure, the Concord Mall came under new ownership in January. The Dover Mall's owner hasn't made a payment on its $94 million mortgage since July, according to cmbs.com, a commercial real estate software and data company.
A comment on the website's listing notes a special servicer is "exploring resolution options to minimize loan loss due to the impact of COVID-19."
The operators of the Concord and Dover malls, Namdar Realty Group and Simon Property Group, declined or did not respond to requests for comment for this story.
A narrative has emerged among some retail analysts that COVID-19, which forced stores in Delaware to close for several weeks this spring and has discouraged some shoppers from venturing out, accelerated retail trends that would have unfolded over the next several years regardless.
But Paula Rosenblum, managing partner at Retail Systems Research, says by embracing experiential elements like movie theaters, entertainment centers and gyms, malls were on the right track pre-pandemic. Now, the uncertainty around how people will respond if the pandemic comes under control — and the direction of the nation ahead of the presidential election has clouded the best forecasts, she says.
"There's a lot of questions that if I could answer them I would, but I think we have to wait for time to show us what happens," Rosenblum said.
At a time when retailers and landlords would typically be preparing for Black Friday and an ensuing flood of holiday shoppers, they've instead launched a flurry of life-preserving measures.
Macy's closed its Dover Mall store to the public and is instead using the building as a fulfillment center for the holiday season. A group of mall owners bought J.C. Penney out of bankruptcy in an attempt to preserve the mall model.
And the nation's largest mall owner, Simon Property Group, reportedly had discussions with Amazon to convert closed department stores into Amazon fulfillment centers.
Whether any of these tactics are viable in the long term is up for debate, but it's clear changes will be needed for lower-level malls like Dover and Concord to have future success.
"You know what, they had a great run. Things change," said Charles Lindsey, an associate professor of marketing at the University at Buffalo School of Management. "What worked 10 years ago or 20 years ago may not work now. What works for one company now doesn't necessarily work for another company."
Delaware's bygone malls: Blue Hen, Tri-State, Rehoboth
The first American shopping malls were modeled after the work of Austrian-born architect Victor Gruen, who designed the first enclosed American mall in Minnesota in 1956.
Historians say Gruen's vision for the mall was to import the pedestrian experience of European cities like Vienna and Paris while serving as a place for shopping, dining and relaxation.
Malls caught on quickly, becoming the center for community interaction in dozens of suburban areas. According to CBS News, about 1,500 malls were built between 1956 and 2005. During the late 1980s and early 1990s, there were at least six enclosed shopping malls in Delaware.
Mark Cohen, director of retail studies at Columbia Business School, is part of a majority of retail onlookers who believe developers overbuilt malls during this period, an issue later compounded by their failure to adapt. As malls became ubiquitous, Cohen previously told Delaware Online/The News Journal, a feeling that each was the "same old" thing set in.
According to News Journal archives, the Blue Hen Mall in Dover entered a downward spiral after the larger Dover Mall opened 4 miles away in 1982. By 1994, the Blue Hen Mall had lost two of its main stores — J.C. Penney and Woolworth — and its operator began converting the mall into the office center it is today.
This unfolded during what Lindsey described as the first wave of mall distress, in which malls in overdeveloped areas cannibalized one another. Business stabilized until the 2000s, when the so-called "Amazon effect" and the rise of big-box stores like Walmart and Target started cutting into the mall's profit.
As traffic at anchor tenants started to drop, the mall model began breaking down. Delaware has seen recent examples of malls operating as a shell of themselves without anchor tenants for several years, before officially closing.
After a 48-year-run, the indoor portion of the Tri-State Mall in Claymont closed in 2015. Its final anchors were Kmart and Burlington.
The inside of the Rehoboth Mall off Coastal Highway fully closed in 2017, years after Alterations by Soula and RadioShack became its only remaining tenants. The Rehoboth Mall was the state's most recently built in 1986.
The recession spurred by COVID-19 is the latest distress wave to hit the industry, Lindsey said, and it's compounded by the fact most legacy retailers and mall operators have yet to make significant changes to take on online commerce and big-box stores.
More than a dozen primarily brick-and-mortar retailers have filed for bankruptcy since the start of the pandemic. The number of store closures is expected to pass last year's record-high of 9,300 as tracked by Business Insider.
"It's as striking as it appears," said Mark Ryski, founder and CEO of Headcount Corp., a company that analyzes retail traffic. "What we're seeing is a dramatic acceleration of trends that were substantially already underway. ... There will be permanent change as a result of this."
What could replace the anchor tenant?
One of the most troubling trends for mall operators is that the national department store chains they have long relied upon to fill large spaces at their properties are floundering.
Mall tenants pay a base rent and a percentage of sales to landlords under the presumption the landlords will attract anchor tenants that drive foot traffic to the smaller interior stores.
When a mall anchor closes, the mall's owner not only loses the rent paid by the anchor tenant but also risks losing other tenants who can exercise "co-tenancy clauses." The clauses allow a retailer to renegotiate or break their lease when certain conditions are met, such as multiple anchors going dark or occupancy dipping below 80%.
The Concord and Dover malls each lost Sears, once America's largest retailer, within the last two years, and neither has shared plans to replace them. And the Macy's at the Dover Mall has closed its doors to the public, leaving in doubt its long-term future.
Deloitte is forecasting the increase in holiday spending to be down about 3% from last year's mark, including a 25% to 35% jump in online spending. Experts say this could lead to a "shakeout," involving even more store closures that throw malls into further uncertainty.
Increasingly, mall owners are acquiring store operations — and the associated risks — to maintain control of anchor space and limit the potential harm of co-tenancy clauses.
Most notably, a group including Simon and Brookfield Properties, which owns the Christiana Mall, purchased J.C. Penney out of bankruptcy last month. In other cases, landlords are reportedly negotiating rent breaks to keep tenants as anchors close.
In Delaware, J.C. Penney has stores in the Dover Mall, Christiana Mall and Prices Corner shopping center.
"The mall operators are going through these discussions and trying to figure out how they can preserve a modicum of reasonable rental income and find the right kind of tenant mix," Ryski said. "I don't know that anyone has found the right kind of secret sauce in terms of repurposing the big mall spaces."
Rosenblum still believes filling vacated department stores with experience-based tenants such as Main Event-style entertainment centers, trampoline parks, gyms and movie theaters is the right move for mall owners.
"I think that will return once we get out of this mess," she says.
Cohen, the Columbia professor, holds a more bleak outlook.
"The great American shopping mall has seen its best days."
The shopping mall of tomorrow
Prior to Simon and Brookfield's purchase of J.C. Penney, the Wall Street Journal reported Amazon was in talks with Simon to convert empty Sears and J.C. Penney anchor spaces into distribution centers.
For Amazon, the potential deal would bring the company closer to customers and improve efficiency in the final stage of product delivery. For the mall, Amazon would help account for an increasing number of vacancies, taking over some of Simon's most difficult to fill spaces.
But ultimately, many experts don't see Amazon, the yearslong rival of brick-and-mortar stores, entering shopping malls on a wide scale. They argue there are several pitfalls to replacing mall space or malls entirely with warehouses:
- It would require difficult-to-obtain rezonings enabling industrial use.
- The value of the mall would diminish if large sections of it are dedicated to warehouse space that doesn't drive foot traffic.
- The multi-floor layouts of department stores aren't conducive to being used as a fulfillment center.
- Rent for retail space is generally higher than rent for industrial space.
Lindsey's vision for the shopping mall of the future harkens back to its predecessor. He believes the most successful malls a decade from now will hardly resemble those designed by Gruen almost 70 years ago.
Instead, they will look like the town squares and the Main Streets they replaced.
"I think that the mall of the future from flagships to regional malls ... we're going to come full circle. It's going to look more like what we saw in the forties and fifties," Lindsey said. "You're going to see more green space, mixed-use living, public-use ... a little bit smaller and it's going to look more like a lifestyle center than a traditional mall."
The pandemic has made it more difficult for mall operators to invest in these types of redevelopments, which could also include apartments, townhomes and offices to create a steady flow of nearby traffic for retailers.
Namdar, which owns the Concord Mall, has made illusions to a mixed-use redevelopment in previous statements but has not shared any plans publicly.
The roar of engines as they zipped around the empty Dover International Speedway bounced off the mostly empty Dover Mall parking lot on a weekend afternoon. Weeds peeked through much of the deserted and cracking parking lot.
Inside, jazz saxophone playing over the loudspeaker echoed through the mall. The stores leading to the shuttered Sears were mostly barricaded by iron gates.
As she walked toward the Boscov's entrance with her daughter, Kristy Markland said she didn't know what was left in the mall.
"I haven't actually walked in the mall," she said. "I don't do that like when I was a teenager or in my 20s."