It’s Official, Malls Are In Trouble, Get Out Now

Consumer shopping attitudes are changing as a direct result of unemployment, real estate foreclosures, the many bankruptcies of major stores in malls and declining revenues for stores. As a result, malls are suffering. The larger malls are fairing slightly better than smaller strip malls that are suffering from a significant and growing number of vacancies. The major issues are the high rents, reduced store revenues and lower traffic. This is causing many smaller stores to default on rent payments and mall management is evicting and forcing tenants out of the malls. This has had a ripple effect as the more stores that are put out, the lighter the traffic will be in the mall and the downward cycle continues.

I believe this trend will continue. Negotiation on leases in malls is next to impossible because the malls are concerned with the ripple effect on their revenues. If they reduce rents for one store, they must for many others, so negotiations are unlikely.

The reality is, malls must readjust their requirements or go out of business–another trend we are seeing. Many malls are failing at the ownership level and are being bought out by others for far less than what the previous owner’s basis was and thus debt service will be less and rents can then be lower. This process takes time and eventually malls will fall in line with the overall reduction of rents occurring all over the country, required for the mall stores and the mall itself to survive. Unfortunately, many malls are not yet willing or able to reduce rents and thus the slow erosion process continues.

I recommend that mall stores suffering from reduced revenues and who are unable to negotiate a reduced rent exit as soon as possible. I understand the personal guaranties signed by store owners are a barrier to store owners leaving malls, but these issues can be negotiated and worked out. This is not a good reason to stay on in a losing situation. I also understand that some chains and franchises require mall locations making changes difficult, however, we have worked with these issues repeatedly and these issues can also be worked out.

The issue here is simple. In view of declining revenues and high overhead, stores forced into a loss position MUST make the necessary adjustments or they will fail. There is no choice.