Wednesday, April 09, 2014

The Demalling of America

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Once upon a time, not so long ago, when you shopped for non-food items, you went to a mall. Malls were everywhere, often just a few miles apart, and your basic shopping decision was which mall to go to.  Now, if you haven’t noticed, things are different.  You buy things on-line – not everything, because that would trigger panic in the retail community, and there are no signs of panic.  But the trend is clear.

In Biddeford, a small city near here, a new mall opened a few years ago. It was the worst possible time to open a new mall, compounded by the fact that the mall was hopelessly misdesigned, with traffic patterns that defy motorists to choose the correct lanes to drive in.

So, in a breathtakingly short time, stores began failing. Lowe’s and a Best Buy, both large stores, were among the first to fold, but they were not the only casualties. Several restaurants closed or were sold to new franchisees.  A Market Basket supermarket replaced Lowe’s, undaunted by the existence of three supermarkets nearby – including a Super Wal-Mart and a Shaw’s within a half mile. A Target store still stands hopefully in the mall, next to the vacant Best Buy, but few people expect it to become a mecca for shoppers.

I’m not picking on Biddeford Crossing. The same thing is happening across America.
There is a sea change underway in consumer shopping patterns. The old, brick-and-mortar stores are under siege, and it’s hard to see anything that can change the trend.  Those stores that have successfully added an on-line shopping option will do better, but the question remains: What will become of all that brick and mortar?

The effects of the demalling of America will be felt in many quarters, including employment (that new Market Basket, it is reported, employs 450 workers!) and investment. Best Buy and Target, notwithstanding recent bounces, sell for about 15 times earnings, while Amazon stock sells for 75 times 2015 earnings estimates! 

What will become of all that brick and mortar? Stores will fail, and malls will disappear. The process will be painful for many employees and investors, but it is inevitable. Technological change is often painful, but those who play it wisely will do well.