Many traditional brick-and-mortar retailers are being threatened with “economic destruction” by their online competition. I’ve had the opportunity to spend some time looking at this issue, and I believe we’re seeing clear signs that the e-commerce revolution is seriously impacting commercial real estate and will continue to do so. Online retailers are relentlessly acquiring success in many retail categories. As a result, many offline businesses are fighting to survive for their economic life. A number of physical retailers have already succumbed to online competition including Circuit City, Borders, CompUSA, Tower Records and Blockbuster.
Many other physical businesses are also showing signs of serious economic distress. While many of these large businesses collapsed due to their inability to compete online, The shopping mall is also in danger from the “online shopping revolution. ” Many malls are closing stores by the thousands, and there are few large physical chains opening stores to take their place. The recession in 2008 was the catalyst for bringing down many of these businesses, but competition from online retailers continued the financial difficulties for many offline retailers. The mall business isn’t economically healthy either.
Most professionals understand that profound changes are afoot. Don Wood, CEO of federal realty investment trust, says “there is too much retail supply in this country. ” The wall street journal reports: green street advisor (forecasts) that 10 percent of the roughly 1,000 large malls in the U. S. will fail within the next 10 years …. That’s a conservative estimate. Many mall CEOs predict the failure rate will be higher. I agree with the above perspectives. A report from Co-Star observes that there are more than 200 malls that have vacancy rates of 35 percent or higher.
This is a “clear marker for shopping center distress. ” In short, These malls are becoming ghost towns. They are not economically successful now and will only get less so as online business continues to steal retail sales from physical stores. Hundreds of malls will soon need to be repurposed or demolished. Strong malls will stay successful for a while since retailers are willing to pay for foot traffic and customers, but even they stand in the path of the shift of retail spending from offline to online.
However, despite the decline of physical commerce, there has been a huge rise in online commerce. If I were thinking of starting a new retail brand right now, I would unquestionably start it online. many very talented entrepreneurs are doing just this. I personally shop at Bonobos for pants, J. Hilburn for sweaters, Ledbury for shirts and Warby Parker for eyeglasses. In the past, these retailers have started in the mall but they now are starting online. This is a trend that will undoubtedly continue.
There will clearly be fewer new offline retailers to take the space vacated by the disappearing brick-and-mortar chains. This puts further pressure on malls to try and make money. While doing research for this article, I came across a fascinating website called deadmalls. com. it is a site that chronicles the stories of hundreds of already or soon-to-be dead malls. Unfortunately for mall owners and people who work inside them, the content on deadmalls. com is about to expand substantially. There just are too many malls in America, and this will only get worse.