25% of U.S. shopping centres to close by 2020: Credit Suisse

25% of U.S. shopping centres to close by 2020: Credit Suisse

7 July 2017

Is the retail apocalypse nigh?

A new research note from Credit Suisse estimates that 20-to 25-per cent of all shopping malls in the United States will close by 2022.

Putting that another way, from 220 to 275 of the nation’s 1,100 shopping malls will shut down within five years, reports Fortune magazine.

Credit Suisse attributes the expected closures to the rise of e-commerce and the increasing popularity of off-price chains, typically located outside of shopping malls.

The Wall Street bank predicts that e-commerce will continue to pull shoppers away from bricks-and-mortar retailers. It estimates that, by 2030, apparel sales will represent 35 per cent of all e-commerce, a 17 per cent rise from today.

Already major U.S. retailers such as Macy’s, JCPenney, Sears, Office Depot, and Michael Kors have announced multiple store closures—around 3,600 stores in total—and Credit Suisse estimates that about 8,640 store closures will ultimately close by December 2017.

Some retail chains won’t survive until then. Once-popular brands such as American Apparel, Limited, BCBG, Wet Seal and Payless ShoeSource have already filed for bankruptcy, reports Fox Business.

Indeed, other retail industry experts say that Credit Suisse may have underestimated the scope of the upheaval.

According to Ron Friedman, a retail expert at accounting and advisory firm Marcum, the share of malls that will close in the next five years is “more in the 30% range.”

“There are a lot of malls that know they’re in big trouble,” he told The Chicago Tribune.

Not all planned closures, though, are due to cost cutting.

Some retail chains are selling off stores to fund merger deals with like-minded retailers. Drugstore chain Walgreens, for example, is selling off more than 1,000 in order to seal a lucrative merger with competitor Rite Aid.

On the other hand, some industry commentators claim that the Credit Suisse research note presents an overly simplistic view of the changing shopping centre landscape.

“There are still malls being built, predominantly outlet malls and lifestyle malls,” David Marcotte, senior vice president with Kantar Retail, told the Los Angeles Times.

Paula Rosenblum, co-founder and retail analyst at RSR Research, agrees. “The problem with a lot of these studies … is they look at what’s dying, they don’t look at what’s being born,” she said.

According to Ms Rosenblum, lower-tier shopping centres will bear the brunt of the blow.

Yet, there is no doubt there is too much retail space in the U.S. and that a contraction has long been coming, says Fortune.

Currently, there are 2,353 square feet of space of shopping centres in the U.S. for every 100 Americans, compared with 1,636 in Canada and 458 in Britain, according to one estimate.

On one point, however, most analysts agree. To survive and stay relevant, shopping malls need to make serious changes.

Instead of an apocalypse, expect a brave new world.