Improved Vacancy, Less New Construction According to Cushman & Wakefield, the US shopping center numbers were positive for the first half of 2016, with the Q1 vacancy rate at 7.9%, compared to 8.3% for Q1 2015 and Q2 2016 at 7.6%, compared to Q2 2015’s 8.1%. Retail sales have been trending positive, with Q1 2016 at +2.8%, compared to Q1 2015’s +2.7%. Q2 2016 performed better compared to last year, at 2.6% and 2.1%, respectively, and Cushman & Wakefield’s 12-month forecast is for continued growth. New shopping mall construction, as measured in total square footage, declined during Q1 2016 from Q1 2015, at 21.5 million and 25.8 million, respectively; and Q2 2016 wasn’t much better, at 24.5 million compared to Q2 2015’s 28.5 million.

Tenant Trends Despite the above statistics’ positive spin, many shopping centers/malls continue to lose their traditional anchor stores, with the significant closing of major retailers’ stores (apparel and department stores*) and recent bankruptcies (sporting goods). According to Cushman & Wakefield, discounters, dollar stores, off-price apparel, restaurants and grocery stores are the retail categories expanding into these open spaces, although many of these categories are reaching the saturation point. Mall owners are reluctant to cite e- commerce as the sole challenge since Q4 2015 e-commerce sales were just 7.5% of all retail sales. E-commerce was actually the equivalent of 20% of mall sales when items not offered at a mall are removed.

Responding to Consumer Revolution What retailers and shopping malls are finally understanding is that consumers want a seamless shopping experience: online research helps consumer to narrow their choices when shopping in a physical store. Consumers are also looking for an experiential shopping experience. Everyday, common items can be purchased online, but people come to malls for arts & crafts and cooking classes, grocery stores with cafes and sporting goods stores with equipment testing. Shopping malls are also introducing more technology to attract consumers, including Wi-Fi service, mall directory apps, in-store access to inventory to order items not found in a store and online-only retailers’ kiosks and pop- up stores.

Overabundance of Outlet Malls Although Value Retail News’ August 2015 State of the Outlet Industry painted a rosy picture for outlet malls, since then construction of malls have decreased from 4.2 million square feet during Q2 2015 to 1.8 million square feet during Q2 2016. With 33% more outlet mall square footage built during the past decade, many are now located too close to retailers’ mainline stores and off-price stores, such as T.J. Maxx, that offer the same discounted brands. Another factor is that approximately 25% of outlet malls are located in or near major tourist destinations. A stronger dollar reduced Chinese tourist visits, for example, 6% from December 2015 to March 2016.

Giving Strip Malls a New Life As of March 2016, there were more than 100,000 strip malls/shopping centers in the US. During Q2 2016, the national vacancy rate for community and neighborhood centers improved to 9.9%, a decline of 10 basis points from Q1. Strip-mall developers are introducing new anchor-store concepts, such as fast-casual restaurants, a beer garden, organic grocers and urgent care centers and dialysis clinics. Others are being transformed into mixed-used properties, including residential units. As more public transportation becomes available in urban areas, strip malls are partnering with government and renovating strip centers to be more pedestrian-friendly.

Next Steps in Shopping More developers are repurposing shopping malls and centers with parking and other infrastructure to accommodate the specific needs of restaurants. Food trucks and grocerants – grocery stores with eat-in and takeout – are also being added. Just as many retailers have added fulfillment centers and delivery services to their retail locations, some shopping malls have introduced their own same-day delivery service of online or in- store purchases from tenants. Kimco Realty Corp.’s “Clicks to Bricks” Program offers online-only retailers one-year of rent-free tenancy in a single store to attract more Millennial shoppers.

Advertising Strategies Shopping malls/centers must aggressively promote new types of tenants, experiential shopping experiences and new technologies as they are added to re-imagine their brand in the minds of consumers. TV and a direct-mail campaign would be a wise strategy for malls/centers to promote arts & crafts, cooking and home improvement DIY classes targeted specifically at Baby Boomers. Malls/centers in conjunction with their new restaurant tenants should create and promote early-week specials that provide a group of shoppers who have made purchases at other stores a discount, or a free dessert or adult beverage.

New Media Strategies Whenever the mall or tenants stage an experiential event, such as classes or music concerts, shoppers should be encouraged to share their experiences on social media and receive a mobile coupon to use in a store within the next couple of hours. A “brand ambassador” program is a perfect fit for malls/centers, inviting one or more individuals from different age or consumer groups to represent the mall with regular creation of video content to share on social media, promoting mall activities and events. Malls/centers can create and promote via social media an hands-on technology fair where consumers can experience new technologies, such as virtual reality headsets, and talk with experts. Include a drawing to win a VR unit or other emerging technology product.