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Malls Diversify to Survive Department Store Diaspora

Shopping malls across the U.S. are struggling to stay afloat as their biggest draws, department stores, continue to close locations. In order to stay in business, mall owners have been farchitecture-2557567_640orced to get creative with their businesses.

It is no secret that since the e-commerce boom began, traditional brick and mortar retail stores have been struggling to keep up. Just recently, Sears and Kmart announced 43 more store closings. Meanwhile, e-commerce generates roughly $1.2 million every 30.

For malls, the loss of their most steady businesses has been dire. Mall Real Estate Investment Trust (REIT) stocks have fallen 18% in the past year. That number is in stark contrast with the rest of the REIT market, which saw gains of 4% and the general popularity of real estate investment, which interests around 89% of U.S. investors, according to Better Homes and Gardens Real Estate.

As retail profits and investments fall, many mall owners are turning to other tried and true forms of revenue, like their food courts.

“Food is the new fashion, and fitness is the new food,” Kenneth Bernstein, who is the CEO of Acadia Realty Trust, a REIT with several retail center properties, said to Crain’s Chicago Business.

Food sales in malls have risen in recent years, growing from roughly 6% to around 15% of the total sales, but that is not enough to counter the drop in clothes sales many malls have faced, down from 70% to somewhere closer to 50%. So what can malls do?

Cedrik Lechance, an analyst with California based firm Green Street Advisors LLC, has a suggestion.

“If Sears shuts down, you need to reinvent that part of the mall,” Lechance told Crain’s Chicago Business. “Typically, when you reinvent one part of the mall, you redevelop the whole mall.”

So far, that reinvention has taken a number of forms. According to Sandeep Mathanie, the CEO of the mall operator GGP, Inc., The ideal mall now includes a supermarket, tech stores, and retail locations for online businesses.

Some have varied even further from this formula, incorporating businesses like doctor’s offices and apartment spaces. Urgent care and other retail doctor’s office are especially good fits for many malls, as the average urgent care needs seven exam rooms to keep up with the walk in clientele. And space is one thing most malls have in spades.

Fitness clubs are also a popular way to attract more foot traffic into malls. At the Southdale Center in Edina, MN, a three-story Life Time fitness complex is being built in the old J.C. Penney. The hope is that the fitness center will help sustain the mall.

“Our focus is to develop all-inclusive destinations that encompass the full spectrum of daily life for thousands of individuals, couples, and families of all ages,” Life Time Fitness CEO, Bahram Akradi, said to Retail Wire.

While such a lavish complex might not be realistic for every mall, many are still moving to incorporate some element of physical fitness. One of the popular options is a spin class franchise, the popular fitness trend which uses stationary bikes.

When people come to the mall to exercise, there is a greater chance that they will spend time in the mall once their work out is complete. After all, exercises like cycling increase dopamine and energy levels, and help to reduce fatigue when performed three or more times a week. Better moods and frequent trips to the mall stand to yield at least a moderate boost in patronage.

But exactly what return will be seen is hard to predict, as Ami Ziff, director of national retail at Times Equities, a New York based firm, explained.

“It’s not always an exact science quantifying the return on investment when it comes to mall renovations and redevelopments,” he told Crain’s, “Every property has its own story.”