Why Shopping Malls Must Exist In the World of Internet
Imagine a time when shopping malls are a thing of the past. There’s no more mother/daughter shopping dates, no more taking pictures by the fountain at the food court, and certainly no more middle school hangouts at the mall on Friday night. It seems so distant, so unimaginable, but that’s where America is headed as shopping malls are being threatened by ecommerce.
Dave Ervin, CPA at Sadowski & Company, saw e-commerce threatening the livelihood of malls long before any of us could see what was happening.
Ervin, who owned a chain of candy stores featured in Class A malls and airports, said, “Internet based traffic has been affecting brick and mortar retailers since the late 90’s.”
Ervin believes a principal reason for this is the lower cost that internet-based companies have to pay. Ervin’s candy store locations typically were controlled by mega-leasing agents (such as Fortune 500, General Growth Properties). Leasing agents control the amount a retailer has to pay per square foot, and consequently the type of retail tenant class that a mall can attract. Specialty stores like that of Ervin’s often have to pay $150-$200 per square foot for annual rent (while typically striving to generate annual sales of $700-$1,000 per square foot). By contrast, mall anchor stores (like Belk’s or J.C. Penny) often own their own real estate parcels and could prosper with only $150-$300 per square foot in annual sales volume.
Without factoring in any additional marketing costs, specialty stores typically have to generate over twice as much gross profit per sales dollar as anchor stores just to break even. Adding in e-commerce competition often makes it impossible.
Internet stores don't have to pay rent or sales tax. While they do have to consider shipping costs, that’s relatively minor compared to the sales tax burden, base rent, sales volume based, “bonus” rent and additional common-area maintenance charges that mall-based stores have to pay. These internet based companies have realized the profit they are able to make by claiming “no sales tax, just shipping” and use their lower cost structure to their advantage.
Brick and mortar stores have had to convert more leisurely, impulse buyers to destination-oriented customers in order to survive. They are particularly vexed by browsing customers that purposefully log onto a website and order products which they first encountered at a brick and mortar location.
Ervin believes there will always be a place for shopping malls; the malls will just need to figure out how to best get shoppers back involved in the social aspect of the mall scene.
Let us know what you think! Are malls a thing of the past? Or will they always be your go to?