Malls of America: Death Rumors Greatly Exaggerated

The shopping malls in America were described as “concrete carcasses” in a story broadcast on NPR last week. While a clever alliteration, it seems to be an overstatement. A more accurate description is that U.S. malls are far from dead, but rather reemerging from deep coma after some dramatic cosmetic surgery.

There are approximately 1,030 enclosed malls in the United States today according to a recent report by Green Street Advisors, a real estate research firm. They estimate that 15 percent of mall stock will close or be repurposed within the next ten years, with the greatest risk among low-end venues.  Not a terrible prognosis.

It is unsurprising that malls would fail if the surrounding market can no longer support them, according to Ellen Dunham-Jones, professor of architecture and urban design at Georgia Institute of Technology.  Trends to increasing population in urban areas have increased the popularity of mixed-used real estate developments that combine residential housing, retailers, and businesses into a single, easy-to-navigate edifice.  The Mall of America in suburban Minneapolis may be suffering from such a shift.

Opened in 1992, the Mall of America was lauded not merely as a shopping destination, but rather as a comprehensive entertainment experience. In response to declining traffic and sales, the Mall of America recently launched an advertising campaign suggesting the venue as ideal for Girls’ Night Out or Couple’s Time. Created by advertising agency Martin Williams, the campaign invites visitors to “Indulge in the Awesome.”

(Photo credit: Wikipedia)

Target TGT +1.04% and Walmart, two big-box retailers that have spent the bulk of the last decade expanding their offerings and their square footage into “super” stores, recently announced that they are opening “express” versions of their respective offerings. These edited versions of their parent stores were created to meet consumer desires for a more convenient, expeditious shopping experience.  Consumer researchers coined this new behavior as “mission shopping.” Supposedly “mission shoppers” go into stores with a very specific shopping list and don’t deviate from it. To best meet the needs of this emerging behavior, theoretically retailers should reverse their inclination to fill the area closest to the register with impulse items, in favor of shelving the most popular items closest to the store entrance and exit.  Even Starbucks SBUX +0.24% announced recently that they are experimenting with smaller, express versions of their typical stores, designed to get consumers in and out in less time.

So in these times when small is the new black, why is Nebraska Furniture Mart, part of the Berkshire Hathaway portfolio, going all in on an epic mixed-use mega mall outside of Dallas?

The new NFM project is named Grandscape, projects 8-10 million shoppers per year, and describes itself as “one of the largest and most unique mixed-use real estate developments.” Located in The Colony, outside of Dallas, Texas, it will cover more than 400 acres, with 3.9 million square feet of retail, entertainment, dining, and attractions, and is slated for completion next year. This is the fourth location of Nebraska Furniture Mart, with existing stores in Omaha, Des Moines, and Kansas City.  As any Warren Buffett groupie knows, the lore of Nebraska Furniture Mart is deeply entrenched in Berkshire Hathaway culture, with many stories of Buffett’s various encounters with Mrs. Rose Blumkin (Mrs. B), who founded the retailer in 1937 with the motto “sell cheap and tell the truth.” In 1983, she sold NFM to Buffett on a handshake agreement. According to Buffett, she continued to share her feedback after the sale and he reportedly addressed her dissatisfaction on a specific occasion with a policy change, a bouquet of olive branches, and a case of See’s candy.

Dunham-Jones says that despite the negative press, mega malls aren’t doomed and goes on to identify several examples of success stories in a mall-challenged country, including Dadeland Mall, outside of Miami in Kendall, Florida. To succeed, malls must provide a combination of shopping, dining, and entertainment experiences that consumers can’t get elsewhere. Berkshire Hathaway’s Grandscape project looks to check all those boxes.

But even with enhanced experiences, bricks and mortar retailers are vulnerable to the power of the Internet, which facilitates the practice of “showrooming.” Often consumers use a retailer to sample a product (perhaps try on a pair of jeans), and then order that product from a lower-cost supplier using a smartphone, ultimately walking out of the store empty handed and without spending a dime.

One would think a development as bold as Nebraska Furniture Mart’s Grandscape, with such a venerable team, has surely thought through the opportunities and risks, and determined the likelihood of becoming another “concrete carcass” with 4,900 parking stalls unlikely.  Or maybe they’ve already figured out how to re-purpose 400 acres of concrete, should that become necessary.