How Malls Are Evolving In The U.S. | CNBC Marathon

Summary

This CNBC video dives into the evolution of malls in the U.S., highlighting how malls are adapting to modern consumer demands by integrating housing, dining, and entertainment options. With younger generations rediscovering malls as social hubs and convenience driving visits to strip malls, the landscape of retail is shifting dramatically. While some malls face challenges with high vacancy rates and the decline of traditional anchor stores, others are transforming into mixed-use spaces to meet housing deficits and engage a diverse audience. Overall, the video portrays a retail renaissance as malls evolve to offer experiences beyond mere shopping.

Highlights

• Malls are adding housing to change empty spaces into vibrant communities 🏘️.
• Dining is a major reason people visit malls now, not just shopping 🍔.
• Younger shoppers are bringing malls back, seeing them as places to hang out 🎶.
• Strip malls are favored for their convenience and diverse service offerings 🚗.
• Experiential retail is on the rise, making malls destinations for fun and leisure 🎡.

Key Takeaways

• Malls are evolving, not dying, with new formats including housing and mixed-use spaces 🏢.
• Dining and entertainment options are becoming new anchors, reinventing mall visits 🍽️.
• Younger generations are visiting malls for social experiences and nostalgia 👥.
• Strip malls are thriving due to convenience and in-and-out shopping experiences 🛍️.
• Retailers are adapting to new consumer behaviors, integrating online and physical shopping 🛒.

Overview

The video explores how U.S. malls are transforming to remain relevant in the retail sector. By incorporating mixed-use elements like housing and entertainment, malls are drawing in diverse crowds. These changes are largely driven by shifts in consumer preferences, particularly among younger generations seeking social spaces.

As traditional anchor stores close, malls are reinventing themselves with dining and entertainment options. This evolution is seen as malls become hubs for social interaction, casual dining, and even housing, addressing broader community needs.

While some malls struggle with vacancy, strip malls are gaining popularity for their convenience and efficient shopping experiences. Retailers are strategically moving into these spaces, reflecting a broader trend of integrating online and offline shopping to cater to modern consumers.

Chapters

• 00:00 - 00:30: Introduction to Evolving Malls The chapter "Introduction to Evolving Malls" explores the transformation of malls in the United States, highlighting a trend where at least 192 malls planned to integrate residential living spaces by January 2022. The narrative describes the unique experience of living in a mall, emphasizing the historic aspect of residing in converted retail units. Additionally, the chapter discusses the increase in visits to strip malls driven by consumer demand for convenience. Furthermore, it touches on Macy's strategy to adapt to these changes by planning to open 30 new small format stores by 2023.
• 00:30 - 01:00: New Anchor: Restaurants The chapter titled 'New Anchor: Restaurants' discusses the transformation of malls, highlighting how restaurants have become key attractions. With data from Yelp indicating a 7% increase in mall dining businesses since 2019, the chapter explores the revitalization of malls, which are seeing a resurgence in younger shoppers. It mentions the significant role of youth, specifically Gen Z, with 60% of respondents from this demographic making mall visits, signifying a revival of interest in these shopping centers.
• 01:00 - 01:30: Gen Z's Perspective on Malls The chapter explores the perception of Generation Z towards malls, highlighting a common belief among them that malls are not dying but evolving. The narrative is supported by a visit to The Arcade, a place with tiny shoebox apartments, indicating a modern, urban lifestyle embraced by some Gen Z individuals. The typical apartment size, as mentioned, is around 250 square feet, emphasizing compact living spaces.
• 01:30 - 02:00: Revitalization of Dead Malls The Arcade Mall in Providence, Rhode Island, once a bustling shopping center, experienced a decline typical of many U.S. malls, resulting in complete vacancy. However, it found a chance for revitalization through unconventional means.
• 02:00 - 02:30: Housing in Malls The chapter discusses the conversion of a historic building into micro lofts, emphasizing the trend of repurposing vacant mall space for housing. With a significant amount of U.S. mall space currently vacant, the text highlights the potential for transforming these spaces into residential areas, especially in light of the country's housing challenges.
• 02:30 - 03:00: Challenges in Conversion In this chapter, the focus is on the challenges in converting spaces, particularly shopping malls, into housing units to address the massive housing shortage, which is currently at a deficit of 4.5 million homes in the U.S. The chapter discusses how this situation presents opportunities to utilize existing mall land and infrastructure to create housing, especially with the built-in customer base provided by the constant influx of people for work and leisure from Monday to Friday. This trend is gaining momentum, evidenced by the fact that as of January 2022, at least 192 U.S. malls planned to integrate a housing component.
• 03:00 - 03:30: Strip Malls as Competition The chapter 'Strip Malls as Competition' discusses the decline in regional and super regional malls, noting an 8.5% drop since 2015. It explores the potential of new housing developments to rejuvenate traditional American malls and poses the question of what living within such developments is like, with an investigative focus on Providence, Rhode Island.
• 03:30 - 04:00: History and Growth of Strip Malls Amy Henion resides on the top floor of a three-story mall in Providence, Rhode Island, and has done so for two and a half years.
• 04:00 - 04:30: Investment in Strip Malls The chapter titled 'Investment in Strip Malls' discusses the architectural and zoning restrictions faced by tenants, highlighting that due to local codes, cooking devices with an open flame, such as stoves and ranges, cannot be installed in any units. Privacy concerns are addressed minimally, as residents become accustomed to frequent movement and have the option to use blinds for privacy. Despite these limitations, the text hints at some benefits, such as accessibility, appreciated by the residents.
• 04:30 - 05:00: Environmental and Social Impact The chapter discusses the convenience and unique experience of living at The Arcade, highlighting the availability of shops, restaurants, a salon, and a bookstore within the building. These amenities make it easy for residents to enjoy various activities without leaving the premises, which is particularly beneficial during New England's stormy weather.
• 05:00 - 05:30: Gen Z's Spending Power The chapter 'Gen Z's Spending Power' discusses the influence of young renters and temporary residents on businesses located in multi-functional real estate spaces, like shopping malls. There's a focus on the connection between lower-floor businesses (like bars, restaurants, and clothing stores) and the residents occupying the upper floors, many of whom are drawn to the mall's amenities. The chapter features insights from a real estate investor, Scott Sheehan, who highlights the built-in customer base these residents provide to local businesses, emphasizing the residents' brand loyalty. This dynamic is portrayed as beneficial for both business owners and real estate investors who use platforms like Airbnb.
• 05:30 - 06:00: Retailers' Adaptation The chapter 'Retailers' Adaptation' explores the unique experience of living in a community-centric environment, possibly in a mixed-use development where retail and residence blend. The narrator shares personal insights into feeling more integrated into the community than in a typical apartment setting. However, this lifestyle has its challenges, such as dealing with people mistaking the residence for an Airbnb. Despite this inconvenience, the narrator finds the sense of community worth the minor compromises.
• 06:00 - 06:30: The Role of Dining in Malls The chapter discusses the significant role that dining and malls play in communities, emphasizing their contribution to local economies. Malls are not only retail destinations but also economic centers that generate significant tax revenue and employment opportunities. The chapter highlights the broader socio-economic impact when a mall closes, including job losses and the deterioration of surrounding businesses.
• 06:30 - 07:00: Conclusion: The Future of Malls The chapter discusses how developers are repurposing defunct malls into mixed-use spaces, such as offices, medical facilities, and residences. It highlights that approximately 54% of these conversions are becoming residential or office spaces. Traditional anchor stores like Macy's and JCPenney, which were once central to American malls, are significantly reducing their presence; Macy's plans to close 150 stores by 2027, and JCPenney has already shut down hundreds after declaring bankruptcy.

How Malls Are Evolving In The U.S. | CNBC Marathon Transcription

• 00:00 - 00:30 As of January 2022, at least 192 U.S. malls planned to add a housing component. Whats it like to live at the mall? It's really great. It's cool to be part of such a historic building and knowing that every single one of these units used to be a shop of some kind. With consumers seeking more convenient shopping options, visits to strip malls have surged. Macy's announced in 2023, it was opening 30 new small format stores in off
• 00:30 - 01:00 mall locations. Brands like Sephora and Starbucks are also moving in. Yelp data shows that restaurants have emerged as the new anchor for mall visits, with 2024 seeing 7% more mall dining businesses compared to 2019. What we've seen in the last few years is almost a complete reimagination, like a true renaissance for the mall sector. Despite a number of closures, U.S. m alls are making a comeback due in part to a surge in younger shoppers. 60% of Gen Z respondents say they visit malls to
• 01:00 - 01:30 socialize or meet friends. I definitely don't think that they're dying. I think that malls are just evolving. So welcome to the teeny tiny shoebox apartment inside The Arcade. There are lots of others in the building just like this, so mine is about 250-square-feet. There is a walkway right in front of the facade because
• 01:30 - 02:00 this used to be a shopfront, and so people had to access all of the shops in the building. While malls across the U.S . are facing store closures and empty parking lots, some are finding a new life from an unlikely source. We are here at The Arcade Mall in Providence, Rhode Island, the oldest indoor shopping mall in the country. The Arcade had long been a center point in Providence's bustling downtown, town, but like other malls, it fell on hard times. It was completely vacant.
• 02:00 - 02:30 But rather than letting this historic building fall into ruin, developers came in and decided to build 48 micro lofts here on the second floor, and up here on the third floor. While top tier malls continue to be in high demand, nearly 34 million-square-feet of U.S. mall space is vacant and off the market. Almost 70% of Americans live within an hour of a mall that has a high vacancy rate, low consumer traffic, or is abandoned altogether. At the same time, the country is facing a
• 02:30 - 03:00 massive housing deficit of 4.5 million homes. There's a housing problem in a lot of markets across the U.S., right? This is an opportunity to to find land and have a built in customer base to get people into the mall. Monday through Friday, this is really busy down here. I t's definitely, you know, people in the offices working, getting lunch or whatever, my barber is downstairs. As of January 2022, at least 192 U.S . malls planned to add a housing component. The US has about 1,100
• 03:00 - 03:30 regional and super regional malls, about 8.5% lower than 2015. So can new housing developments help revive the classic American mall? And what's it like to live inside one? CNBC went to Providence, Rhode Island to find out.
• 03:30 - 04:00 Amy Henion has been living on the top floor of a three story mall in Providence, Rhode Island for the past two and a half years. What's it like to live at the mall? It's really great. It's cool to be part of such a historic building and knowing that every single one of these units used to be a shop of some kind. But living in a converted store does present some challenges. Here is my very tiny kitchen. It is very small, but it is workable. And one of the interesting things about the units in
• 04:00 - 04:30 the building is that because of codes, you can't have any cooking devices with an open flame, so none of the units have stoves or ranges. Do you ever have any concerns about privacy? Not really. It's something you get used to living in the building, having people coming and going. Everybody has blinds in their apartment that they can raise or lower as they like. Despite those challenges, residents say having access
• 04:30 - 05:00 to shops and restaurants makes living at The Arcade a unique experience. I get my hair cut in the salon downstairs and there's little lunch spots, so you don't even have to leave the building. There's a bookstore downstairs and they'll do author talks in the private lounge area. Avoiding New England's sometimes stormy weather is, of course, another perk. If it's like pouring rain outside or if it's snowy, you just really can't be bothered to go out in the weather. You can still go
• 05:00 - 05:30 downstairs and take advantage of those amenities. And it's not just long term renters that are attracted to the mall. Scott Sheehan is a real estate investor and rents out his apartment on Airbnb. Some of these business owners that are down on the first floor, how important is it to them to kind of have a built in customer base with these residents on the second and third floor? I know a lot of folks are very loyal to many of the bars, restaurants, clothing stores downstairs. So, you know, the business folks downstairs definitely are interested in
• 05:30 - 06:00 maintaining that relationship with with the residents. You definitely feel like you're part of the community more so than if you were just in a standard apartment building. It has been interesting with people trying to unlock my door thinking that this is an Airbnb apartment. So sometimes you have to deal with the public more than you would in a regular home. But for me, that's a small compromise.
• 06:00 - 06:30 When a mall dies, communities lose more than just a shopping destination. Malls often serve as economic hubs, generating billions in tax revenue and creating thousands of jobs. In 2020, U.S. malls and shopping centers contributed $400 billion in tax revenue. When malls close, it triggers an economic domino effect, local businesses suffer, jobs are lost, and vacant spaces become eyesores.
• 06:30 - 07:00 To combat this, developers are transforming dead malls into mixed use spaces, offices, medical facilities and housing. Of these conversions, nearly 54% are being used for residences and office space. Once upon a time, retailers like Macy's and JCPenney were the were the anchors of America's malls, but department stores are shrinking. Macy's plans to close 150 of its namesake stores by 2027. JCPenney, which has already closed hundreds of stores since declaring bankruptcy,
• 07:00 - 07:30 is closing four more between this year and next, despite $1 billion turnaround investment plan. When you have dead retail space, it can be easier to clear that most of what a retail site is is parking lot, so you don't have to demo much to demo a parking lot. And the buildings themselves are generally easier to demo and then adapt into a retail space. The Arcade is a little bit different than some of the other mall based residential projects out there.
• 07:30 - 08:00 Most of them, like the one at Flatiron Crossing in Broomfield, Colorado, are adjacent to the mall and connected by green spaces or walkways. This was a vacant parking lot, underutilized parking here at the mall and we, you know, decided to go to a mixed use project here. All of the benefits that the shopping center itself bring to the equation. You have a highly amenitized residential project that's much more desirable than something that might just be, you know, in an isolated
• 08:00 - 08:30 location. Not only does it meet housing needs, but it also revitalizes the property by bringing in a new customer base that can boost on site restaurants, gyms and entertainment venues. While housing and malls sounds promising, it's not without its challenges. Zoning laws can be a major hurdle. Malls are typically zoned for commercial or mixed use, not multi-family residential. Developers often need approval from local jurisdictions to move
• 08:30 - 09:00 forward. Like any other developer you know are having to navigate things like interest rates, construction costs, the capital markets, and so on. Another obstacle is design. Most malls have limited windows, which are essential for residential spaces because they need natural light, making it difficult to convert certain parts of the mall. Usually, only the exterior facing retail spaces are suitable for housing. Converting commercial office space into apartments is another trend, but it's often very
• 09:00 - 09:30 expensive. A study found that in five U.S. metro areas hit hardest by remote work, the estimated office acquisition price would need to drop by 50% for the conversion to be financially feasible. Conversion projects are really tricky because, you know, a lot depends upon existing conditions which you might not always know about, but to give you a range on a very low end, you'd be looking at maybe $200 a square-foot to convert. Where on the upper end you might be looking more at like $800 or more
• 09:30 - 10:00 per-square-foot to convert. Despite those headwinds, malls across America just might have a second chance if they can truly become the housing hubs of the future. The mall is becoming cool again. And so being able to live by it, work by it, play by it, go to restaurants by it, we're definitely seeing it this as a trend. Some people are confused and they'll say like, why would you want to live in a space that's small? But for me, it's about having a reasonable apartment at a reasonable price that will
• 10:00 - 10:30 force me out into the community and interacting with the people outside. The point is not to stay in the 250-square -foot studio. It's to interact with the downtown that you're living in. U.S. adults make about 1.3 billion visits to shopping
• 10:30 - 11:00 centers each month, or about 62 trips per person annually. While some outlets, like malls, have struggled to retain shoppers, foot traffic to strip malls is booming. Annual visits to strip malls surged 18% in 2023 compared with prior to the pandemic. Convenient shopping options, hybrid work and millennials moving to fast growing suburbs are driving that trend. And retailers are trying to get a slice of the action. Macy's is trying to adapt to the changing retail environment, moving out of
• 11:00 - 11:30 shopping malls and into suburban strip centers. Macy's announced in 2023, it was opening 30 new small format stores in off mall locations. Brands like Sephora and Starbucks are also moving in, as are fast food restaurants, making strip malls one of the hottest plays in commercial real estate. But strip malls face criticism for being an eyesore to their communities, contributing to environmental problems and blamed for the demise of traditional business districts. When we think of strip centers, we kind of think of older, dilapidated strip
• 11:30 - 12:00 malls that are lining the buildings in urban areas. I wrote a book about shopping malls, and I mostly focused on indoor shopping malls because they're honestly much more interesting architecturally. People have deeper feelings of nostalgia for indoor malls because they have more sense of place and presence. I don't think that people have a lot of sentiment about strip malls because they're very utilitarian. The U.S. has more than 68,000 strip malls from coast to coast, more than regional malls, super
• 12:00 - 12:30 regional malls, neighborhood centers and outlet malls combined. So how did the U.S . become bathed in strip centers? And could the format be the future of brick and mortar retail? A strip mall in general occupies a 10,000 to 50,000-square-foot property of connected buildings, dominated by a large parking lot, with roughly five spaces for every 1,000-square-feet of retail space, usually located
• 12:30 - 13:00 parallel to a major road or on a corner. They are also visible to visible to thousands of potential shoppers who drive by each day. Most properties are one story tall and have fewer than ten tenants that have traditionally included a mix of niche retailers like nail salons, liquor stores and laundromats. With consumers seeking more convenient shopping options, visits to strip malls have surged. These strip centers offer more of an in and out experience, so lines are shorter because of smaller
• 13:00 - 13:30 stores. Parking is easier. They're usually, you know, on your way home from dropping your kid off at school or on your way home from work. Their growing popularity is also due in part to stores offering goods and services you can't get online. We see these health services urgent cares, for example, going into these strip centers, UPS, Fedex with people ordering online. You see a lot of those in these strip centers where people just want a quick in and out return. You're also seeing a lot of specialized fitness studios.
• 13:30 - 14:00 The tenants in a strip mall within a neighborhood tend to be e-commerce proof, relatively recession proof, remote work proof. And they provide inexpensive retail space for brands. Facing dwindling traffic, Macy's has opened roughly a dozen off mall stores called Market by Macy's and Bloomies as the retailer pivots to fast growing suburbs. The new stores are about a fifth of the size of traditional stores and offer a slimmed down selection. While Macy's shares have underperformed the S&P 500
• 14:00 - 14:30 overall, sales of its off mall stores have outperformed the rest of the company. Macy's said in February it was closing about 150, or a third of its legacy stores. New consumers younger consumers are not necessarily as inclined towards kind of the fortress mall experience as their parents may have been. They're local, they're easy to get to. The format is simple to shop. They're not doing this with the expectation that they're going to make a tremendous
• 14:30 - 15:00 amount of new sales here, but it's a convenient place for consumers to pick up, to return, to touch and feel certain items, even if they order them and they're delivered the next day to their house. The trend has other retailers clamoring for space, too. Strip mall vacancy rates plunged to their lowest levels in decades, significantly below other property types, including both regional malls and neighborhood centers, which occupy up to 25 acres. Other brands exiting the
• 15:00 - 15:30 mall in favor of outdoor properties include Bath & Body Works and Foot Locker. Strip malls got their start in the 1920s, but it was decades later when the format took off. 1950s is when the strip mall really came into fashion. Its suburbanization of this country. So we have the automobile now available for the masses. We have inexpensive construction, processes materials for
• 15:30 - 16:00 small single family homes. We have the highway. The areas along the highways were pretty low cost real estate initially because they weren't good places to build homes, but people hadn't really figured out what to do with them yet. So to build these like very simple, often concrete block structures, one story structures for strip malls was a cheap way to give space that was highly rentable to stores. But today, rising costs and
• 16:00 - 16:30 higher interest rates have put constraints on new strip mall construction, leading to higher rents for businesses. The average rent at strip centers in 2024 reached $20.95 per square foot, more than 17% higher than in 2019. Rising rates have given strip malls the title 'The King of Retail real estate'. Investors are taking notice. Site centers, which owns and manages open air shopping centers in high income suburbs, is spinning off its portfolio of strip mall properties. The new company, called Curb Line Properties,
• 16:30 - 17:00 went public October 2024. Strip malls are also an attractive investment for commercial property owners because they are cheaper to purchase than large anchor retail shopping centers, and the landlord generally has less upfront costs. Even if you buy an existing anchor shopping center, the large national 50,000 square foot store isn't going to move into a space exactly as is, and that cost is often on landlords to outfit the space for the 60,000 square
• 17:00 - 17:30 foot Walmart or Target. If you invest in a strip center, typically you'll have these precut boxes, and you'll attract tenants that are essentially going to be ready to move into the space, as is. Most strip mall properties can be acquired for less than $5 million. Leases also typically have built in rent increases, and some have what's called a percentage rent provision, where, in addition to the minimum rent, a tenant pays a small percentage of their sales, roughly 3 to 5% goes to the property owner as additional rents.
• 17:30 - 18:00 So as a tenant, this may be attractive because your landlord has a financial interest in keeping the surrounding area occupied clean, maintained, attractive so that more customers are attracted to their tenant stores. The tenant demand is there. The consumer demand is there. And when you look at a lot of other investment opportunities within commercial real estate, there's a lot of question marks.
• 18:00 - 18:30 While strip malls offer shoppers a convenient option to pick up last minute items and find services, they aren't a perfect fit for everyone. It discriminated those that didn't have an automobile. Yes, there might have been a bus route, but for many that have taken busses, busses in the United States have never been that great. On top of that, strip malls face environmental concerns. They're set in front of a parking lot that also tends not to be landscaped. On a road that is also asphalt so you get a very large heat island effect
• 18:30 - 19:00 from strip mall development. A lot of times since they were built so cheaply, they were built on cheap land, and frequently that land can be in a bottom or a wetland. And so you'll see a lot of puddles in their parking lots after a big rain, because there's actually groundwater seeping up from below, as well as rainwater from above, and it has nowhere to drain if everything is asphalted. But new investments could see many strip malls rehabilitated, with some converted into multi-use
• 19:00 - 19:30 spaces. One survey found consumers in three Pacific Northwest cities said they were willing to pay 8.8% more for goods and services in well landscaped strip malls, versus one without greenery. The survey was mailed to 1,200 households. Strip malls could also be used to solve some of the nation's housing shortages. Converting just 10% of the U.S.'s 47 million-square-feet of strip mall space could create 700,000 new multi-family homes. The strip mall that I see as being successful now,
• 19:30 - 20:00 and even more so into the future, is set up more like a small community, a small town in a lot of ways, where you may even have stores at the ground level and an apartment on a second or third level. More green space, more walkways, pedestrian only areas, places for outdoor dining. But while strip malls become the future of brick-and-mortar retail, some think it has a bright future. We need what we need when we need it. And strip malls
• 20:00 - 20:30 offer that convenience to pop in and out and get those kind of services that you can't order online. The apocalypse never came for retail, we recognize that it just was a constant evolution and it's about getting the tenants right. And now there is a new formula for getting that right. I typically am an independent person, but I
• 20:30 - 21:00 love going to the mall with someone. I love going to the Apple Store and buying an iPad with a friend, or I love going to Abercrombie and getting a camouflage sweatshirt with a friend. Despite a number of closures, U.S . malls are making a comeback due in part to a surge in younger shoppers. Nearly 60% of shoppers ages 18 to 34 say they shop at the mall often or sometimes, compared with just 48% of 35 to 54 year olds. Members of Gen Z born between 1997 and 2012,
• 21:00 - 21:30 are spending money in physical stores at a similar rate to their grandparents. What retailers have learned, is that that the store can be used not just for traditional shopping. It can be used as a mechanism to fulfill online orders and vice versa. It's actually more convenient for me to just go to the store, try on the item. If it doesn't fit, I could just return it right then and there. You know, instead of having to go to UPS, send it back waiting another 5-to-7 business days. Malls are also pivoting from traditional department stores to providing an array of entertainment options and
• 21:30 - 22:00 leisure activities. Over the past decade, Macy's has closed more than a third of its stores. Born into a digital world and known for working, shopping and dating online, Gen Zers spend on average six or more hours on their phones daily. One of the other funny things about Gen Z is that they're so social media savvy that they love to post about experiences they have, including shopping. One of the reasons why they're going to malls is because they want to have the bags they can show off on TikTok of the haul they had from the mall. And if they shop online,
• 22:00 - 22:30 they have a bunch of cardboard boxes rather than branded bags. The U.S. is home to an estimated 1,226 malls, 7% less than 2017. So can younger shoppers help save the traditional brick and mortar mall? CNBC went to Freehold Raceway Mall in New Jersey to find out.
• 22:30 - 23:00 Lindsey Hyams is a 23 year old from Marlboro, New Jersey. Her shopping journey begins online. I typically like to shop online first, because I like to get the experience of looking through a whole entire catalog, a whole, entire website. My favorite app is called Locker, so I can actually collect all the items that I want on an app and then go into a store like Aritzia, Zara, Abercrombie, American Eagle, and I can go in and I can actually shop all of my photos or all of my collections. But it often ends at the
• 23:00 - 23:30 mall. Freehold Raceway is one of over two dozen New Jersey malls with over 200 stores and restaurants. When you come to the mall, what's your typical day like? I always stop at Starbucks because I definitely need some caffeine, a breakfast sandwich. I typically do like to shop in the morning or like right before the mall closes. Gen Zers, like Hyams, say they like to shop in person because it allows them to touch and feel what they are buying, and they avoid shipping charges. There are about 69 million members of Gen Z. They make up about 20% of
• 23:30 - 24:00 the U.S . population. The group has a spending power of about $150 billion. Do you ever buy online and then pick up at the mall? Yeah, for Zara all the time? Yes. I love doing that for Zara for two reasons. One, it's just free shipping. Um, two, it comes really fast, so it's here in 1 to 2 days. And then also, if it doesn't fit, I could just return it. Some of the top shopping destinations for Gen Z include department stores like Macy's, Bloomingdale's
• 24:00 - 24:30 and JCPenney. Luxury retailers like Gucci and Ralph Lauren, and specialty retailers like Express, Abercrombie and Apple. In addition to speed, shopping in store comes with other perks. I've heard from some people that have researched Gen Z that some of it's also instant gratification and looking for a quicker way to get what you need. Does that ring true to you? I'd rather just drive the 25 minutes and go pick up the sweatshirt, or I'd rather go pick up the pair of jeans. And it's an activity they can do with their peers. 60% of Gen Z respondents say
• 24:30 - 25:00 they visit malls to socialize or meet friends. So many of the Gen Z shoppers I spoke to said there's something about the mall and its simplicity that brings back a lot of nostalgia. The touching and feeling items, the walking around, the sights, the smells. My cousin's coming home for college and our first trip is going to Short Hills. We're going to go to Aritzia, we're going to have our day, we're going to get coffee, we're going to get lunch at Bloomingdale's. So for us, it's a place that we actually can create experiences at.
• 25:00 - 25:30 After living through two major economic crises, the Great Recession and the pandemic, Gen Z is budget conscious and prefers discount retailers like TJ Maxx and Target, dollar stores like Dollar General and fast fashion retailers like Zara. The group also frequents thrift stores and Facebook Marketplace, but they can also be heavily influenced by what they see online, with 85% of respondents from one survey saying social media has an impact on their purchasing decisions. Abercrombie & Fitch, a staple of 90s fashion
• 25:30 - 26:00 known for dimly lit stores and controversial marketing tactics, has seen a turnaround in part by leaning into that online experience. The company includes its namesake chain and Hollister. You know, the kids still like to come to the mall. So even though they may start their purchase online or on their phone, they do complete it a lot of times in the mall. Sometimes they'll find us on social, they'll click into our apps, or they'll click into the mobile web and start looking around. They'll save a basket, and then they'll come into the store and say, okay, I have these 4 or 5 products I want to check out. I'm
• 26:00 - 26:30 going to try them on. I'm going to feel them. I'm going to touch them. In-person sales are a bigger business for Hollister, which caters to Gen Z. Digital sales at the Abercrombie brand make up 60% of revenue in fiscal year 2023, compared with 30% at the Hollister brand. The company said teen customers prefer to visit in store. Shares of Abercrombie & Fitch are up about 75% this year, well above the S&P 500. What we want to do, what we try to do, is that whenever they lift their head up from the phone, you know, these I
• 26:30 - 27:00 have teens, you know, they're always staring down at the phone whenever they lift up. We want it to be a seamless move into that store. So when you think about, you know, the photography that we see online, we want to bring that into the stores. We have video online, we want to bring that into the stores. We want those stores to be light and bright and easy to navigate. The top clothing brands for Gen Z include Nike, American Eagle and Lululemon. For decades, mall culture was a dominant part of life for American
• 27:00 - 27:30 teens. Cult classic films like 'Fast Times at Ridgemont High', 'Mallrats', and 'Clueless' epitomized the meet and hangout culture of that era. Are you suffering from buyer's remorse or something? Malls were also a place for teens to get a job. Teen employment. In the 1970s, 80s and 90s was almost double what it has been in recent years. But times have changed, today, almost half of Gen Z teens said the place where they can be found almost constantly is online. Over half of U.S. teenagers say they spend at least four
• 27:30 - 28:00 hours a day on social media. About a third of Gen Z respondents reported poor mental health in a recent survey, compared with just 14% of Gen Xers and 7% of baby boomers. Shopping for some of them might be an opportunity to go into a store, have a real life experience. Many Gen Zers considered the mall a third space that isn't work or home. Gen Z is becoming an important audience for malls and for retailers. These teens and 20 somethings are starting to make money. They're getting
• 28:00 - 28:30 jobs, they're graduating from college, and they're entering their career years. To try to attract Gen-Z shoppers, Simon Property Group, the nation's biggest mall owner with about 195 U.S. malls and shopping centers recently launched an ad titled 'Meet Me at the Mall' on Netflix, TikTok and Instagram. The ad, heavy on 80s nostalgia, depicted young adults dancing and roller skating at the mall. Won't you meet me at the mall? Other mall owners are leaning into experience and entertainment venues like
• 28:30 - 29:00 Dave and Buster's. Clearly, what you've seen is a move towards more experiential offerings food and beverage, hospitality, etc.. That shift is happening as big anchor stores like Macy's, Lord & Taylor, JCPenney and Sears have downsized or disappeared from malls entirely. One of the biggest changes coming to U.S . malls in the coming years is that Macy's is closing so many of its stores across the country, and that's a huge footprint in a lot of these malls. For mall owners, that could be an opportunity to replace that space with a store or
• 29:00 - 29:30 an experience that will appeal to a younger shopper. But it's not a guarantee if they don't come up with something trendy or unique. That mall traffic could die off. An estimated 2 million-square-feet of mall space was demolished in 2022. A lot of people say malls are dead or malls are dying, they don't have any relevance. What would your response be? I definitely don't think that they're dying. I think that malls are just evolving. Every time I go to a mall, they're definitely thriving.
• 29:30 - 30:00 You may remember coming to the mall for a slice of pizza or some Auntie Anne's, maybe some fast food. But the modern mall has so many dining options that go beyond just the food court. Two martinis? No problem ladies. What we've seen in the last
• 30:00 - 30:30 few years is almost a complete reimagination, like a true renaissance for the mall sector. Yelp data shows that restaurants have emerged as the new anchor for mall visits, with 2024 seeing 7% more mall dining businesses compared to 2019. We have one location outside the mall. Imagine from 12 restaurants, one is outside the mall. So call it, our forte is shopping centers. We found that that's increased probability of succeeding. There are now, I would say,
• 30:30 - 31:00 three critical drivers that are going to get folks to your mall. That's having the hot store, having the hot restaurant, and having the hot experience. So having the right food is so important. So why have restaurants become such a focus for malls and what's in it for them? Would you like regular
• 31:00 - 31:30 water, bottled, sparkling, bottled or flat? No problem. Over the course of the past decade, the narrative surrounding American shopping malls was bleak, and 2020 seemed to be the nail in the coffin. But that's not the case right now. Malls have adapted to the modern consumer, and high end malls are thriving. The modern mall industry is typically thought of as different classes, A, B, C, or D, depending on their price per-square-foot. The sector that is thriving right now is the top -tier class A malls.
• 31:30 - 32:00 These properties have highly sought after retailers like an Apple Store or high end designer clothing brands, plus an elevated dining experience. I'm walking through the Avenue, which is a luxury shopping section of the American Dream Mall in New Jersey, and just past the Gucci and the Ferrari sits a new luxury dining option called Isola Bella. It's a champagne and caviar bar right in the middle of the mall. The owners of Isola Bella own two other restaurants in the mall. The mall provides the venue
• 32:00 - 32:30 something which is unparalleled if you try to compare it with something away from the center. It provides the capital in the marketing. It provides the number of visitors and then the rest is us. Restaurant operators that will either capture and create that relationship or not. Today, a class A mall between food and beverage
• 32:30 - 33:00 and entertainment that could occupy close to 20% of the space of that mall. Whereas 30 years ago, if it was 5%, that was high. JLL, a real estate firm, found that across all types of shopping centers between 2019 and 2022, the percent of square footage devoted to dining increased about half a percent. That's more than 40 million additional square feet of restaurants. However, within malls, the real change has come from the variety and types
• 33:00 - 33:30 of operators. We have an expectation of what a mall looks like from having been to malls, and now we're like, well, why are things changing? And they're not changing because there was magic of headwinds or tailwinds. They're changing because mall owners very correctly looked at the landscape, said retail is changing, and if retail is changing, we need to change, too. Yelp found that 17 out of the top 25 brands driving consumers to malls are restaurants.
• 33:30 - 34:00 Folks have more ways to shop than ever. There are untold millions of places where you can buy almost anything online. So in order to woo them out of their homes, it's not just what you sell, it's really about the entire environment and experience you can create. Food halls with elevated offerings have become a trend in high end malls as well. Eataly is one of the best known and now has ten locations across the U.S. We've seen launches of Eataly spike visits to malls
• 34:00 - 34:30 across the country when we have that launch, and then concept at the launch, whether it be promotions, workshops, tastings, drive significant spikes in visits. It's even more than just being a good complement. In some cases, they're somewhat of an anchor, like they're driving urgency and visits by their own right and as a result, bringing so much value to the wider mall. While these varied dining
• 34:30 - 35:00 options drive traffic to malls, shopping centers have become more of an appealing place for restaurant operators. So you're seeing retail concepts that have sort of thumbed their nose at malls today are saying, you know what? This is a good option. This is probably the best option I'm going to have if I'm going to try to expand my footprint in this market, I need to start looking at malls because the locations I like are already occupied. I don't want to buy a piece of dirt, build it from ground up and the cost of that is too high.
• 35:00 - 35:30 Traffic to suburban malls is back above pre-pandemic levels. Where in the cities and the city centers, foot traffic has not returned? So what we're seeing more and more of is these chefs closing locations downtown and opening locations in the suburbs. And a lot of times they're opening them in, in the malls. Vacancies at class A malls have been generally lower than at class B and C malls. Recently, that discrepancy has been wider than ever. Any restaurant and any other
• 35:30 - 36:00 business is about numbers. How many people passing through your door? A trip to a shopping center or the entertainment center is such it will captivate more people than any venue in the street. The more time you spend at a mall, the more money you will spend at a mall. If folks start to get hungry, they start to get tired and they start to get "hangry," and they're going to leave. Retailers love food at malls because it keeps dwell times higher and
• 36:00 - 36:30 it keeps people shopping longer. And for you, sir. J ust do two pinot noirs. Okay, two Pinot noir. Experts agree that creating a comprehensive experience for visitors should be at the front of mind for mall operators. This helps explain why top tier malls have found success with embracing less traditional dining concepts, like a champagne bar. And what essentially every mall owner is looking to do is say, which retail concepts fit really well within this wider mix,
• 36:30 - 37:00 to speak to a specific audience within that given area. And so we've seen things like Tortazo, which is a high end Mexican chef concept, launch a location within a Macy's and actually drive more visits to the Macy's over time. So it's not just within the mall. In some cases, it's within retail spaces themselves. Entertainment is another anchor. Those entertainment options also have dining options in it, whether it be a theater or a upscale
• 37:00 - 37:30 bowling concept. So there's a lot of blurring of the lines between food and beverage and entertainment. And not every mall goer is looking for a fine dining experience. Every restaurant in every setting of the restaurant has certain appeal to a certain group of the socioeconomic pyramid. The Mozzarella Bar appeals to a certain part of the pyramid. Carpaccio and Isola Bella will appeal to another part of the pyramid. Even though we're seeing
• 37:30 - 38:00 more of this elevated dining at the mall, mall operators are smart, and they have food options for every price level, so they might not have a food court anymore, but at the food hall and at different kiosks, there will still be a burger and fries that'll be relatively inexpensive. So most folks who are shopping will kind of be attracted to whatever price point appeals to them. The area where a mall is situated influences its
• 38:00 - 38:30 dining concepts. Proximity to a residential neighborhood or an office building or a gym can all influence the type of operators that choose to be there. I don't think the amount of dining is ever going to be 80% of a mall, right? But I think it's always going to be a segment of it. I think the types of tenants, which tenants succeed, that's going to change, and there's going to be a constant element of optimization within that, as there should be. It's worth it though, right? Yeah. I'm glad you guys
• 38:30 - 39:00 enjoy it. Yeah.