How U.S. Malls Survived The Death Of Department Stores

The American mall is alive and well.

Department stores — which were historically the most important real estate in American malls — are a different story.

U.S. department stores are struggling to compete against new online direct-to-consumer competitors and smaller brick-and-mortar retailers that have been able to keep up with the ever changing demand of consumers. And this is causing familiar retailers like JCPenney, Sears and Macy's to close, the latter of which recently announced it would close up to 150 stores.

"The ones that are closing are underperforming or have lost their own way with the customer," said Michael Guerin, EVP of leasing at Macerich. "The brand is not working for one reason or another. So it's hardly impactful to us when you have an obsolete situation or a brand close."

Top-tier malls, known as class-A malls, are pivoting toward an experiential model, replacing department stores with grocery stores, casinos, gyms, ice skating rinks and, in some cases, even residential apartments.

The shift in strategy has been working. Malls have bounced back to near pre-pandemic occupancy levels as customers seek out experiences. Mall owners are also capitalizing on the omnichannel strategy bolstering stores' online presence in addition to their brick-and-mortar stores, creating a halo effect for retail sales.

All malls aren't created equal, however. Lower-tier malls are feeling the effects of department store closures more acutely as inflation and economic pressures increasingly split consumers into two categories: luxury shoppers and discount shoppers. That's also causing a split in the fortunes of America's oversupply of malls, with affluent consumers flocking to higher-end malls, bargain-hunting shoppers heading to strip malls, and little left in the middle.

"Those who are calling for the demise of the mall might have been premature. But stepping back, there are probably still too many malls in the country," said Haendel St. Juste, senior REIT analyst at Mizuho Securities. "There were, you know, last, by most estimates, around 1000 malls a few years back."

Watch the video above to find out more about how malls survived the death of the department store.

Chapters:
0:00 Introduction
Ch. 1. The end of the anchor department store?
Ch. 2. How malls pivoted
Ch. 3. What’s next?

Produced by: DeLon Thornton
Edited by: Tim Hurt
Graphics by: Christina Locopo
Supervising Producer: Jeff Morganteen
Additional Footage: Getty Images

About CNBC: From 'Wall Street' to 'Main Street' to award winning original documentaries and Reality TV series, CNBC has you covered. Experience special sneak peeks of your favorite shows, exclusive video and more.

Connect with CNBC News Online

#CNBC

How U.S. Malls Survived The Death Of Department Stores

[retailytt]

Funny thing is the original architect behind malls, Victor Gruen, intended them to be community centers not just shopping...so this adaptation is actually them going back to their original intent

[connecticutaggie]

Another thing that is impacting mall recovery is location. Where regional malls have mostly recovered their patrons, downtown malls have not.

[Watch-w]

The Mall need to evolve to be more of an entertainment hub then endless shopping

[berlingray]

Worked for Sears 18-23 (08-2014) When I quit, the store closed within a year and a half later at the mall I was working at. Sears didn’t want to adapt to the changes of online shopping really

[bigcahuna]

Indoor malls aren't dead; they are readjusting to the demand. In most U.S. cities that have decent economies and where crime isn't too high, they normally have at least one or maybe up to two indoor malls in their area that are performing well. The rest in their area are dying because they aren't needed anymore. In my city in the early 90s, we used to have six indoor malls in my area. Two have died in the past 15 years and were eventually demolished, two were combined into one and is currently performing decent, one is in hospice care economically, and the last one is honestly doing very well to this day.

[RichardHannay]

I work in a dying mall and it’s pretty sad looking at so many stores closed.

[matthewgonzalez]

I think malls should focus on bringing in new smaller stores from local vendors to try and allow more competition.

[davenadave]

On Asia country all The Mall is huge and survive because they're all ONE STOP SERVICE, people don't have to drive and go difference places to done all things ... in The Mall they include everything you can imagine. they all included ---> multiple Bank + Super Market / Hyper market + Theater + Restaurants + cloths + fun park + Clinics (Skin clinic, Spa etc) + etc.

[TinLeadHammer]

"American need for retail therapy"? Or, as George Carlin put it, buying the stuff you don't need with the money you don't have.

[stephaniehale]

*Essentially, American malls are getting Asian-ized. Malls in many Asian countries, especially South East Asia, are a place for many experiences, from shopping, to eating out, groceries, movies, entertainment, games, sports, fitness, residential apartments on top of the mall, etc.*

[williamriley]

The King of Prussia Mall is a higher-end mall just outside of Philadelphia is huge and it’s still growing!

[Aye_Nyne]

How about we build mixed-use walkable neighborhoods again where residential and commercial spaces can co-exist rather than continuing to build these tacky enclosures of consumerism surrounded by a parking moat?

[DubsBrown]

3:27 wait how old is this footage if radioshack is in it?

[NoSenatorson]

Every mall needs to have a residential and hotel space. From what I’ve observed, the ones that don’t are usually empty and have very little foot traffic.

[EcomCarl]

It's fascinating to see how malls are adapting to the changing retail landscape, especially with the shift toward experiential models. This evolution highlights the importance of staying agile and responsive to consumer preferences. 🛍

[Xeonerable]

Sure malls may still be alive after their department store limbs are being chopped off, but that doesn't mean they aren't still bleeding out a slow death.
Companies stopped being competitive, prices are outrageous, they are killing themselves.

[carlosrivera]

When Chilean department store Falabella left the Argentinian market, some experts predicted it would be a death sentence to the malls those stores were in. However, most of those malls have not only survived but are thriving in their post-Falabella era. That retail space has been replaced by coffee shops, larger pharmacies, medical services, gyms or more movie theaters. One good example is Córdoba's Nuevocentro Shopping, in Central Argentina.

[masonedwards]

I don’t understand why American malls haven’t tried what’s worked well in other countries. Yes, I get that America is different to other countries, but maybe, just maybe, other countries do it better.

Many successful Australian malls have supermarkets (grocery stores) in them, as well as what you call “big box stores” (Kmart, Target, Big W) as anchors. Our malls also have stores like JB-Hifi, which would be equivalent to Best Buy. Our malls are essentially one-stop-destinations, with everything you could possibly want, including food courts, restaurants, fashion, beauty, high-end brands, supermarkets/grocery stores, and mainstream big box stores, etc.

Some of the bigger malls have department stores like Myer or David Jones, which are similar to Macy’s, Nordstrom, etc, but not all malls have those types of department stores.

[MrMorefin]

I wouldn’t say it survived, its still slowly going away. Yes there are a small percentage of malls in the US that are doing very well but the majority of malls are either closing or closed, even before the pandemic.

[Mart]

My local
Mall still has Sears, JCPenney and Macy’s opened