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Economic development đź’° Did Macy's kill the mall and downtown retail?

Dan

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My wife and I were in Buffalo yesterday, running a couple of errands. We made a top at the largest and healthiest mall in the region, the Walden Galleria. The mall, which locals redundantly call "the Galleria Mall", is a superregional center with about 1,600,000 square feet (150,000 square meters) of retail space. When the Galleria first opened, there were several large anchor department stores -- LL Berger, The Sample, (two Buffalo-area chains), Sibley's (a Rochester area chain), Bonwit Teller (a NYC area chain), Sears, and JC Penny. There was going to be a seventh anchor, B. Altman, but that chain started to experience financial issues before the mall opened in 1989. AM&As, a beloved Buffalo-area department store chain, eventually opened in the space built for B. Altman. The mall had provisions for even more anchor stores, with Lord & Taylor and Loehmann’s filling in two of them.



Today, there's just six full-service department stores remaining in the entire Buffalo metropolitan area, all in malls -- four JC Penny stores, two Macy's stores, and ... that's it. The Galleria now has only two anchor stores, JC Penny and Macy's (the successor of Sibley's). l now live in a small metropolitan area of about 100,000 residents, where there's now no full service department stores. Zero. Zilch.



When I was a kid, and up until the 1980s, there were five large full-service department stores in downtown Buffalo alone -- four flagship stores of local chains (Hens & Kelly, Adam Meldrum & Anderson, Hengerer's, and L.L. Berger), and one store from a regional chain (Kobacker's). There were tens more in outlying city neighborhoods, and suburban malls and plazas.



Retail pundits like to say that malls were killed off by Amazon, Walmart, power centers, and a supposedly shrinking middle class customer base. There's no doubt the United States was over-malled, and changing demographics in areas where malls prospered in the 1960s and 1970s didn't help. Malls can't really survive without anchor stores, though. Anchor stores are usually full-service department stores. Full-service department stores used to be plentiful in the US, but now they're a dying breed. Why? Pundits usually cite the same things that kill malls, adding women in the workplace to the mix. I think the cause was something else -- consolidation in the department store industry that made the resulting chains too big to fail. When they failed, and there no longer any competitors to fill the void left behind, they bought down the mall and Main Street with them.



With hundreds of local department store chains in the US as late as the 1970s and early 1980s, the industry was resilient. If a department store chain was going out of business, or the owner decided to retire, it might be bought out by another local or regional chain, or offer the opportunity for a nearby small town or junior department store to grow a little big bigger. Starting in the 1980s, merger mania swept the department store industry. Chain A would be bought out by Chain B, which would be bought out by Chain C, which would have an IPO, sell stock, and buy out even more chains and retail groups. Other chains were sold to conglomerates or hedge fund managers, with limited or no experience in the retail sector. The department store industry got less resilient as chains grew larger and the number of players shrunk.

As consolidation continued, the focus of the department store industry shifted away from a pleasant retail experience, service to the community, and building long-term customer loyalty. Maximizing short-term profits became the main goal. Efficiencies of scale meant stripping out aspects of a store that endeared them to the public -- local products, inventory that considered local tastes and favorite brands, restaurants, hair salons, bargain basements, special events and sales, and holiday traditions, The loss of local identity hurt customer loyalty, and made patronizing one store over another -- especially a downtown flagship store -- seem less special. Every American city has one or two beloved lost department store chains, the mention of which triggers fits of nostalgia. (One could end a drought in Buffalo by gathering all the Boomers and Silent Generation folks together, saying the word "Sattlers", and harvesting their tears.) Few feel the same way about JC Penny or Dillard's.



Consolidation inevitably created redundancy. Every city has a few malls where, over time, two competing local or regional department stores got absorbed into the same national chain. There can't be two Macy's or Dillard's in the same mall, so one of them either closes, or becomes a "men's boutique", "home boutique", or "outlet". Those offshoots always fail in the end.

Whether a former department store space became redundant through mergers, or a chain just folding entirely, there were fewer and fewer prospective tenants to fill it. Increasingly, the outcome was re-ocupancy by a downscale tenant like Burlington Coat Factory, temporary use by a pop-up business, or permanent vacancy. With a viable anchor gone, and nothing comparable to replace it, the mall as a whole begins to die, taking down any remaining department stores with it.

In the case of an urban downtown, national chains and conglomerates often saw that a lower return on investment wasn't worth keeping a downtown store open. The downtown store may have been profitable, but it wasn't profitable enough For a locally owned and privately held chain, this didn't matter. For some national chains, there were shareholders to answer to. For others, urban downtowns just weren't part of the business model, no matter how profitable a store might be.



Your thoughts?

 

mendelman

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When I need clothes, I pretty much stick with Kohl's. That's it. Full stop.

Though every 7-10 years when I need to replace my nice suits, I'll swing through Macy's.

The consolidation and subsequent anti-fragility of the market is the clear killer for malls.

But...now that we have malls faltering in even stable/strong local markets (aka where people want to live), we now have a ton of grayfield land in prime locations ready for residential densification/redevelopment...provided the local governments don't get in their own way. Especially in Ohio with extensive use of local income tax, the more taxable households, the better.

Akron OH - Chapel Hill Mall reuse plan
 
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Hawkeye66

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There is no doubt retail consolidation in the department store category has played a role in the downfall of malls. It is all sort of related though. There are a lot of variables at play. Consumer habits have changed a lot. Look at men's wear. We have been a mostly business casual society now for around 25 years at least. Suits and ties are not in demand like they were in say 1971.

I think its mostly a combo of the big box stores and online that has killed them off. I do think some of them will make it. There is still some market for that type of shopping.

You are right though. In Iowa Younker's went out of business and left a big hole in several of the malls here. Interestingly they Younkers name is still being used and its an online store.
 

nrschmid

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This hits home in Dallas which is the headquarters of JC Penney and Neiman Marcus, both of which emerged through bankruptcy protection this year (and Sears in Chicago which has been in shambles for a few decades now).

Investors/hedge manners are terrible at handling struggling department store retail as distressed assets. They buy out and merge struggling chains but never focus on a NEW and INNOVATIVE store (new name, new product, nothing). The department store name carries huge weight, but it can be a two-edged sword.

Sure, I would love Sears to be in business there are great memories.... and I'm going to stop...right...there.

What non-department store, non-retail business of any kind (accounting firm, engineering firm, doctors office) can survive on nostalgia alone?

I haven't bought anything from Sears in a few decades, and I think it was a pair of jeans? For starters, the selection is average and uninspiring. The lighting is overhead fluorescent lighting and the walls bright-white (yes, it does make a huge difference for me). It's a pain the in butt as a male shopper to drive to the mall (and has to be an off-hour to avoid the crowds), walk in the far-quieter entrance near the appliances, through the outdoor furniture department, to some escalator in the middle of the store, take that upstairs to the home decor department, the kitchen supply department, past the shoe department, and the luggage department, to the men's department. Then after rummaging through a few bins of jeans I find a decent, not great pair of jeans but they aren't even in my size (32-33x34). So....then I have to go all the way back to the escalator, take that downstairs go in the opposite direction, through the ladies scarves displays, the watches and jewelry counters, the cosmetics counters (if they have any) through the interior entrance to the mall. Then I have to walk to the other end of the mall to the other anchor(s) to see if they have any jeans (on the second floor) or in the basement. I have to navigate through 2-3 groups of 12-15 year old kids (probably from different schools), a slow-moving grandma with a kid in a stroller or two or ten, mall-walkers, a child-size train of kids snaking around the crowd, a piercing pagoda, massage chairs, gumball machines...blah, blah, blah.

And all I wanted was a pair of jeans.

Why on earth would I support ANY department store if I have to go through that crap EVERY time I needed something?

People's shopping habits change. If you want me to come back to the mall, give me a selection of merchandise I LIKE and that's closest to my car where I don't have to walk several miles over several hours.
 

mendelman

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People's shopping habits change. If you want me to come back to the mall, give me a selection of merchandise I LIKE and that's closest to my car where I don't have to walk several miles over several hours.
This why Kohl's is winning at the modern department store game.

Their stores are just big enough to have a decent selection of most normal dept store categories, but just small enough to be easily navigated. Plus, they are usually in medium sized power center plazas and getting parked and into the store doesn't feel like a trip through the Labyrinth. Also, 'steering into the skid' of online shopping by partnering with Amazon as a physical return location was smart and wise.

Or maybe my Kohl's is just well managed and others in the chain are terrible and I'm just suffering some serious experience bias. ;)
 

jsk1983

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And how many TJ Maxx/Marshall's/Ross etc are there for every department store? Those stores are all over the place and they keep opening more. You might have to a dig a little but the price's are a fraction of that of department stores. Not sure when the last time I bought something at a department store was, not interested in paying those prices...
 

Hink

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I think there is also a new dynamic and expectation for service... or lack thereof. I don't need someone to help me try on my shoes. I can take them out, put them on an decide. So when Macy's wants me to ask to try on a shoe, I am out. I will go to DSW and do it myself.

There are exceptions, but I think we are also more independent in our shopping wants as well, which changes the design of stores and what is valued at that store in terms of prime real estate.
 
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