South Street Seaport Mall in Manhattan

On tax day, General Growth Properties, the 2nd largest owner of U.S. malls, declared bankruptcy with $27 billion in debt, mostly from short-term mortgages due next year. While General Growth says that their bankruptcy does not at this time, mean that their malls will close, there is skepticism that many can continue to exist, at least in their current state. Mall vacancies are already at their highest level in history now, and with this latest bankruptcy, we’re just now starting to feel the ripple effects of commercial real estate failing.

For example, General Growth Properties includes 200 of the country’s largest malls in 44 different states, ranging from the Grand Canal Shoppes in the Venetian in Las Vegas, Water Tower Place in Chicago, Ala Moana Center in Honolulu, Colin Creek Mall in Plano, Faneuil Hall in Boston, and South Street Seaport in Manhattan. According to a report in New Jersey’s Star-Ledger, “In my industry, this is like Chrysler declaring bankruptcy,” said Richard Brunelli, president of Old Bridge-based commercial realty firm R.J. Brunelli & Co. “This is shocking.”

“Malls are in terrible shape,” said Howard Davidowitz, chairman of Davidowitz & Associates, a Manhattan retail consulting and investment banking firm. “The consumer is in survival mode.”

Retail vacancies in New Jersey have doubled in the last year, according to industry studies, and experts say it will just get worse. “With the retrenchment in consumer spending and the job losses in the professional and business services, we’re going to see increasing retail and commercial office space vacancies, declining rents,” said Joseph Seneca, a professor at the Bloustein School of Planning and Public Policy at Rutgers University.

As we noted in last month’s story “Retail’s Revolution and the Changing Dynamics of Success through MCommerce, Second-Tier, Fast-Fashion, Mall Changes, and Other Ideas that Work,” while retail and malls are undergoing vast changes, there are some ideas that are working. Look at Japan, for instance and the Marui One Mall, La Floret, and Shibuya 109, plus the way they attract shoppers to different floors via mcommerce and other means.

Meanwhile, malls across America are becoming empty silos as stores are pulling out. This sort of movement already happened in places such as Nairobi, India, South Korea, and China. For some “malls” in various countries, they never even had so-called traditional stores in them to begin with, but they were busy with shoppers and farmer’s market-style pop-up shops that rent spaces for a day or a week only. In these cases, “informal” retail became the “formal” retail. This is another solution for malls in America losing their stores and traffic. They could rent these giant spaces that once housed only one store for a variety of smaller pop-up shops, or mixed boutiques, combined with local events to attract this new type of shopper and new type of brand -one that often caters to a niche, local subculture. (This movement is already happening with various craft fairs.)

Another aspects to note is how fast-fashion retailers from Japan such as Uniqlo, and Europe such as Zara and H&M, are entering into these empty mall spaces, or setting up locations on their own, in America.

One thing that’s very clear when digesting all of this information is that malls and the former concept of retail in malls, especially in fashion and footwear, no longer match the way this next generation shops. We are often asked, “When will things go back to normal?” When it comes to retail and shopping patterns among global youth culture. The answer is that things won’t ever go “back to normal” because the sense of normal has changed. There’s been a significant paradigm shift in consumer spending and value. Shopping at discount is cool and necessary. This is actually something that the youth and street markets are inherently knowledgeable about. It also means that between the cracks, there are new opportunities for retail. Japan is a great source for how things will work in the future, as we noted in our story last month, as are the fast-fashion giants from Europe. There’s still a strong attraction to authentic Americana, and therein, combined with these other elements, lies market opportunities. Mixing and matching these concepts together will be what’s necessary for success on the other side of the retail revolution.

For more information about Label Networks’ North American, European, and Japan Youth Culture Studies, which come with a Premium subscription, email info@labelnetworks.com; (323) 630-4000. Label Networks’ Spring Study 2009 will be released next month.