There are a few types of malls, and in them, shoppers find a few types of stores. In high-end malls in expensive locations, luxury brands such as Tesla, Nordstrom, or Apple Stores set the stage. In lower end malls in more remote spots, department stores such as Sears, Macy’s, and JCPenney function as the anchors—at least for now. Somewhere in between are mid-range malls that once might have housed four or five department stores but now are shifting gears, looking to put new and exciting offerings, including movie theaters and restaurants in the spaces previously held by the department stores.

The stratification reflects several trends. As shoppers discover the appeal of fast fashion (e.g., Zara), more targeted discount options (e.g., TJX, with its Marshall’s, Home Goods, and TJ Maxx brands), and e-commerce, the broad, undifferentiated offerings of department stores no longer are enough to bring them to the mall to shop. Such competition has been particularly problematic for those stores that conventionally anchored malls in every town, whose positioning was somewhere between the deep discounters and the luxury stores—that is, Sears, JCPenney, and Macy’s.

Accordingly, Macy’s has announced another round of store closings, bringing its total to more than 200 closures in the past few years. Sears has lost nearly as many stores, and it also sold off its popular Craftsman brand. The announcements of store closures keep coming faster and faster, as these well-known brands struggle to eliminate unprofitable operations and keep themselves afloat.

For many malls, the closures are likely a death knell, unless they can convince some other sort of retailer to take over the space. Some malls are pursuing TJMaxx stores, as well as alternative options such as restaurants. On the other side, for malls that are thriving, the reason is rarely the department stores. Instead, shoppers head to these sites to visit an Apple Store or check out the latest model Tesla. Historically though, malls offered the best rental terms to their anchor stores. Thus the most successful malls find themselves allowing an unprofitable store to enjoy the benefits of low rent, without offering much in the way of customer appeal in return.

Discussion Question:

1. Why are department stores struggling?
2. What are mall developers doing in response to this department store problem?

Source:  Tom Ryan, Retail Wire, October 14, 2016