Mall department stores: will the last one please turn the lights out?

We’ve been hearing and witnessing for years the turbulent state of American retail. Conventional sellers of durable goods—of housewares, sporting goods, electronics, and clothes—have suffered in general, and malls have suffered in particular. But even more salient have been the struggles of the historic department stores to our malls. Scarcely a week goes by when national media heave out new articles explaining cost-cutting measures deployed by Macy’s, Sears, and J.C. Penney to help shore up their bottom lines after plummeting same-store sales. Or they just announce the latest wave of closures.

Perhaps, though, the crux of the matter isn’t so much whether malls or department stores are doing worse. It’s about how co-dependent the two are. After all, the aforementioned stores have served as the “Big Three” across much of mall culture for the last decade or so. Virtually all malls in America have at least a Macy’s, Sears or J.C. Penney; many have all three. And none are doing that well; thus, the malls themselves are often floundering. But it’s not just about the fact that these three are struggling everywhere. It’s simpler. They are everywhere, and they are struggling because of it. In 1985, in a metro over one million people, chances are a consumer had at least four malls from which to choose within a 30-mile radius. The overlapping patchwork of small, regional department stores meant that each of these five malls had at least a slightly different combination of shopping opportunities. Sure, the average suburbanite would probably favor the closest mall to home 80% of the time, but now and then he/she might be willing to drive thirty minutes for that other combination of department stores and in-line shops, where at least 25% would be different from what they’ve got in their neighborhood. After decades of mergers and acquisitions, we have come to expect one of the Big Three in just about every mall in the country. There’s little to distinguish the mall five miles to the south from the mall fifteen miles from the west, and every metro with more than one mall has its winners and losers. And at least one of the losers probably closed within the last fifteen years.

For years, the telltale indicator of a dead or dying mall has been the health of the interior space: the hallways occupied by all the smaller, in-line tenants. It’s not just the occupancy rates; it’s the tenant mix. Some malls may be over 80% occupied but still show signs of depreciation because they fail to attract as many of the nationally known brands. If more than half of a mall’s tenants are mom-and-pops, chances are the management cannot charge the rates to attract the big names. I’ve chronicled the portents of declining malls numerous times on this blog, usually by walking those long broad hallways. But sometimes you can see the indicators inside the department stores themselves, particularly the Big Three: those middling Macy’s, the pandering Penney’s, the stumbling Sears. Without even giving away the name of any malls, I offer this:img_6618

Sure, it’s a Penney’s, viewed from the interior of a mall. Doesn’t look so weird, right? I’ll at least divulge that this mall’s health is above average, and the entire layout is two floors. But let’s step inside.dim lighting at Big Three - J.C. PenneyNotice anything strange? It might be hard to tell from an isolated photo, but doesn’t the overall appearance seem just a little bit drab? Here’s a view of the entrance at a slightly greater distance.img_6619That’s the second floor. Here’s the same mall’s J.C. Penney’s, viewed from the first floor.img_6620Looks significantly brighter, right? Yes, indeed, despite the fact that the mall is open, the operators have chosen either to dim the lights on the second floor, or to simply use fewer lights. I suppose we could devise a number of reasons for this. First of all, it wasn’t a busy time: most people weren’t out shopping on November 8, 2016 when they could be awaiting the results of the presidential election. Secondly, the merchandise at the second floor entrance (men’s sporting goods) probably isn’t as lucrative as the typical first-floor presentation, with its perfumes and cosmetics and women’s apparel. But it’s hard not to think that dimming the lights is a last-ditch measure to help cut costs. The typical mall has CAM (common area maintenance) fees that cover most utilities, so I’d imagine the in-line tenants pay a percentage share of the mall’s overall utility bill. But it’s likely the department stores, as anchor tenants, have completely different leasing agreements. If my speculations are correct, J.C. Penney has decided to pinch those pennies by offering mood lighting to the men shopping for Nike and Under Armour.

If this seems like a desperate move for a major Big Three player, it still pales in comparison to Sears. Formerly the national standard for affordable odds and ends, Sears and its partner Kmart may face complete extinction in the years ahead. The photos below come from a Sears at another nearby mall.img_6789img_6790I’ll concede that this mall is much weaker economically, with about 50% vacancy. But the photos come from a weekend night during the busy shopping season. It’s not so remarkable that the Sears itself is bereft of customers—we all expect that—but it doesn’t even seem to hold that much merchandise. I mean, look at those vast empty spaces.img_6791And compare this to Kohl’s in the same mall.img_6795Generally maximizing the use of the floor space. Granted, Kohl’s is among the few middlebrow department stores that has shown few signs of stumbling…a contrast from the Big Three. It closed a few underperforming locations in the past year, but its forecasts generally remain promising. Then again, Kohl’s rarely affiliates with malls; this example in the photo above is an exception. As I noted earlier, Kohl’s tends to serve as an anchor tenant in more conventional strip malls, or the outdoor-oriented power centers.  It has proven surprisingly resilient so far—an unapologetically healthy retailer while its competition retreats to hospice care.

Competition like Sears. I’d imagine Sears could be a little lax with its use of gross leasable floor space; in a middling mall, it’s probably not paying a whole lot. But according to this Business Insider article, Sears may owe much of its emptiness to the fact that suppliers don’t trust the company’s solvency. Things are so bad at Sears (and Kmart) that they can’t even stock their spaces with full inventory.

We can and should expect a big shoe to drop in the next few years, probably in the form of one of the Big Three declaring Chapter 11 bankruptcy protection. You can tell from my coverage which one I’m betting on. But then, what will that mean for the hundreds of malls that depend on these stores for tenants? Some operators are already starting to recognize that the future for commerce is the information superhighway, and they’ve begun wooing online start-ups to take the smaller tenancies at malls. But customers won’t have any reason to patronize malls filled with nothing but personnel to run an online company. Thus, the malls won’t need those huge parking lots. Regardless of the future, it’s hard to gauge exactly who dominates chessboard that we perceive and live as our contemporary consumer landscape. Who’s the grand master? Probably nothing more than Adam Smith’s invisible hand.

24 thoughts on “Mall department stores: will the last one please turn the lights out?

  1. Astara

    The main floor of Sears at Castleton Square is almost entirely Lands End. I suspect that may be what’s keeping it open.
    JC Penney and Macy’s do have merchandise and were bustling a few Saturdays ago when I visited, but they’re more like discount stores with product in total disarray and deep price slashes everywhere.

    Reply
    1. AmericanDirt Post author

      Nice to hear from you Astara, and always great to get your feedback. I noticed a similar disarray to the Carsons in Circle Centre back in Christmas 2015. As for Sears and Lands End, who knew?! I sure didn’t. I figured until recently that Lands End was middling semi casual for boomers and Gen Xers who listened to Del Amitri, but I’ve learned that they’re making a killing in the corporate branding (monogrammed shirt) sub-market. Didn’t Lands End also used to be overwhelmingly catalog-driven?

      Reply
    2. Astara

      yes! But they’ve had micro-boutiques in select Sears stores for several years now. I’ll send you photos the next time I’m there.
      LOL at your characterization of Land’s End customers! Miss you.

      Reply
  2. Katie Zappe

    I didn’t read the article, but I’m standing in line at Sears currently and the scenario is ridiculous. If I didn’t need an item for tomorrow, I’d stick with buying everything online!

    Reply
    1. AmericanDirt Post author

      “Ridiculous” as in crowded, or just a total mess? Sears is probably gunning for the former, without giving a rat’s patootie about the latter.

      Reply
    2. Katie Zappe

      Register 1 had 2 foreign men paying with about 5 travelers checks (which I didn’t realized existed anymore). They forgot their ID (explains why earlier I saw the one man running through the store) then proceeded to chat with the clerk for 10 after being done. Register 2 had a man exchanging pants for other pants. No dialogue there but that took a good 15 minutes and the lady yelled at me for not standing in the correct (unmarked) line. She went to lunch after that customer. Register 3 had a middle aged/older couple buying many items and then discussions about gift boxes/gift receipts/ and a Sears charge card ensued. After that couple was done, the guy in front of me bought pants. Finally my turn to buy my overpriced “Fleece Navidad” sweater with a sheep wrapped in Christmas lights for my work Christmas party, and I was told I am too fast and young for the outdated register technology, as I tried to insert my chip credit card prematurely to the chaser being ready. Questions ensued, I said I worked retail for 7 years and she told me she worked in IT for 24 years where she had to rush during her lunch breaks too.. None of which seemed to make her more expeditious about anything. I hope you’ve enjoyed my rant, and I better win that damn sweater contest.

      Reply
      1. David L. R. Freeborn

        That’s interesting. The last time I went to Sears they yelled at me for standing in the wrong spot too. If it wasn’t for having a gift card, I’d have dropped my merchandise and walked out. Sears used to be THE place we shopped when I was a child. And the big draw was the quality of Kenmore and Craftsman. Now I’m not even interested enough to look up if Kenmore is still even a thing, and Craftsman is sold in other places. Trying to pinpoint Sears’ problems has become a fun exercise. But I think they have tried to be everything to everyone and succeeded in being not much of anything for anyone.

        Reply
        1. AmericanDirt Post author

          Thanks Dave. It’s generally Craftsman that I hear about when people talk about what they liked most from Sears. But if a single brand was their biggest selling point, there’s not much reason for being a “department” store, is there?

          Reply
  3. Brian Reid

    Amazon Prime. Free shipping. Sunday delivery. No sales tax (State governments either haven’t figured that out, or are too chicken to work around 1992’s Quill decision).

    Department stores used to be fun for the customer service. The last time I bought something at Macy’s (2011) Michael and I had to dig through a bin of Lenox tablecloths while five sales personnel (and no customers) hovered around the cash register discussing the previous night’s sitcoms.

    Contrast that to the department store I visited in Sydney one year ago. There was an attractive young lady standing at the top of each rise of the escalator, just to answer any questions you might have.

    Reply
    1. Katie Zappe

      You’re lucky Amazon doesn’t hit you with sales tax. In PA we pay it, it might be because they have warehouses here.

      Reply
      1. Brian Reid

        Katie Zappe, that would be in line with Quill. Of course, we’re supposed to report all our tax free sales on our state (Louisiana) income tax return, and we have something on that line, but, you know, how’s that workin’ for you?

        Reply
          1. Katie Zappe

            Indeed it was! As I was responding before, I recalled the cover of the DVD (I wish my semi-photographic memory remembered more useful things), which takes me back to my 7 years retail I spent working at Sam Goody that I told the Sears worker about. I enjoy how this has come full circle.

    2. AmericanDirt Post author

      Your Sydney experience is probably more in line with luxury department stores (Bloomingdales, Nieman Marcus) which are generally doing fine. And as Katie Zappe noted, we have tons of warehouses out here (the East Coast inland empire) including a new one going up of over 1M square feet for–you guessed it–Amazon.

      Reply
  4. Kevin Lane

    Apparel is what is killing Sears. If they got rid of half the clothing and accessories they sell replaced it with mattresses, appliances, sporting goods, etc they would be a profitable company

    Reply
    1. AmericanDirt Post author

      it’s not likely helping, since it takes up probably 50% of their gross leasable area. Mattresses and appliances–you could be right, since they’re bigger ticket items, and that’s where Best Buy and HH Gregg seem to be moving. But sporting goods (since they’re small) can easily be bought online, and most people feel comfortable doing that. And if a store’s online presence is weak…that’s a big factor in what killed Borders Books.

      Reply
  5. Kristy F

    I’ve always thought Kohls was deliberately dim. They’re another chain with huge markups and ridiculous “sales.”

    Reply
    1. AmericanDirt Post author

      I’d never noticed that with Kohls. Maybe so–but whatever they’re doing seems to be working. They at least can keep their stores fully stocked, unlike Sears.

      Reply
      1. Rose

        If you only shop there during the ridiculous sales it’s not bad. I only shop at Kohl’s between Black Friday and Christmas and only for other people…same as with other department stores…they all suck.

        Reply
        1. Kristy F

          Kohls is great for clearance sales. I used to buy at least half my kids’ wardrobes there. But I would never pay full price.

          Reply
  6. Jeffrey Jakucyk

    The lack of inventory at Sears is getting pretty ridiculous. Their stores remind me of Service Merchandise in its waning days. I can’t even buy Kenmore humidifier pads there anymore, and their website is nearly useless at finding the right parts, plus shipping charges that are nearly as much as the item itself.

    Reply
    1. AmericanDirt Post author

      It’s a slow, downward spiral. I can’t help but think that the only reason they’ve been able to stay around this long is that the overall costs for their real estate is close to peanuts, since so many Sears are located in declining or dead malls, while the freestanding Sears tend to be in stagnant towns or inner-ring suburbs. In other words, it’s a double-edged sword: their leases and real estate holdings don’t amount to much, but they also don’t gain much in reduced expenses by closing new (understaffed) stores or selling them off.

      Reply

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