FLASH UPDATE: Mall Traffic Declines Foretell a Scary Story for Many Retailers

Mall Traffic Declines Foretell a Scary Story for Many Retailers

Sbarro is going out of business (again)!  My late-80's / early 90's teenage self just had his food court meal decision of Sbarro, Panda Express or Roli-Poli made that much easier.  Sbarro recently filed for bankruptcy for the second time in three years, specifically citing slowing customer traffic in its shopping mall locations.  

For full disclosure, aside from pictures of my kids with Santa Claus and the Easter Bunny, I don't think I've been in a mall to shop in a solid 15 years.  The crowds (obviously less so nowadays), the perfume mist shower waiting to fill your lungs as you race through some dingy department store that you needed to enter the mall through, the inefficiency of having to walk end to end to get to a store that may or may not carry what you want, for an item that most likely isn't on sale...No, I think I'll just sit in my cozy home on my tablet, or in my office on my PC, or in my car on my iPhone and just type in six easy letters.com (A_M_A_Z_O_N).  I might have been ahead of my time in my disdain for malls, but I am no longer in the minority.  

Retail analysts have been cutting earnings targets nearly across the board as mall traffic continues to precipitously decline.  The last holiday season was particularly dire as slowing traffic trends, combined with slipping consumer confidence, lack of must-have fashion items and unbearably cold weather in most (my) parts of the US resulted in 15% declines in foot traffic.  Just last week, Brookstone filed for Chapter 11.  The bankruptcy is planned and Spencer's will be acquiring some combination of its assets and liabilities.  First, let me get past the fact that Spencer's is still a company.  I guess they sold enough whoopee cushions and gag gifts to stay alive all these years...Bravo.  Second, I suppose Brookstone's business model of having brick and mortar stores in malls where road weary shoppers can pull up, sit down in a massage chair and get a free 10 minute relaxation session without any glimmer of an obligation to make a purchase doesn't work.  

Target, American Eagle, Aeropostale and Macy’s are just some of the many mall-heavy retailers that have significant plans to close stores and fire employees.  The point is that the industry is going through a multi-year period of store closings and reduced square footage.  Some estimates expect retail square footage to be cut by a third to half in the next five to ten years.  Interestingly, Rick Caruso recently said at the National Retail federation Convention that he was unaware of a mall being built since 2006.  2006!!!

Online retailers are gaining significant market share every day and online shopping is a fact of life now, worldwide.  Quicker, easier and cheaper shopping methods are available to most at the click of a mouse or a swipe of a finger.  We expect this trend to continue and for many traditional brick and mortar retailers to have a difficult time transitioning.

Richard Travia
Director of Research