Dufton: Right. We're just at the beginning of the absorption of this wave of vacancies. You have all of these Sports Authority boxes and hhgregg boxes, and the backfill tenants are still to be determined. In terms of the mall retailers, that could be particularly problematic.

GlobeSt.com: Is this a concern for mall owners across the board, or is it more likely to be a problem for some of the lower-echelon properties?

Dufton: It's definitely not the A malls that are facing this struggle at this point. They're still going to have some vacancies from liquidations, but they have a higher probability of being able to backfill these spots. You're really talking about the B and C-plus malls.

GlobeSt.com: For B and C properties, these closings undoubtedly put a crimp in their ability grow rents. What measures are they taking to counteract this?]]]

Dufton: They're looking more aggressively to non-retail uses: entertainment, schools, clinics, gyms, restaurants—anything that can help drive some traffic there. But it's going to be a lost cause for some of these malls. You're already starting to see some of them come up for sale.

GlobeSt.com: Presumably at a substantial discount to what they would have been worth a few years ago.

Dufton: Some of them have no value now. The cost of carry is just not worth it. Their debt service coverage ratios don't hold up anymore. Thankfully, interest rates haven't risen as much as everybody thought they would.

GlobeSt.com: The threat from e-commerce is a talking point that comes up frequently. How serious is it?

Dufton: It's obviously a big piece of the puzzle, but there are other factors. There's changing demographics in retail and how retail goods are purchased. Millennials do not shop in the same way that prior generations did, certainly; it has to be more experiential for them in terms of entertainment and dining options. Retail is going to need to adjust to that. Incomes have been stagnant for a fairly extended period, and that also has affected retail substantially.

GlobeSt.com: We've been talking about the steps that owners have been taking. What are retailers' priorities?

Dufton: Certainly the pace of store openings has slowed down significantly, and when retailers do look at opening new locations, they have a much more critical eye. It's a much longer process, because they're trying to preserve their capital. I think most of them are focusing on the closing and restructuring side at this point. From a closing perspective, if a store is marginal, they'll usually look to ride it out until the end of the lease term, because it's not a good investment to pay to terminate the lease.

You're seeing a lot more lease restructuring attempts when a store comes up for renewal or there's an option period. They're trying to control their occupancy costs, and to limit the amount of space, to rightsize the box. Do they really need the size of box that they have right now? Long-term, can they live with something smaller?

BOSTON—This year's ICSC RECon in Las Vegas promises to be a banquet of new concepts and forward-looking ideas for retail industry participants of all stripes. However, for both shopping center owners and their tenants, there are plenty of day-to-day considerations related to driving traffic and capital preservation. Mark Dufton, CEO of Gordon Brothers' real estate platform and a veteran of more than 25 years in the industry, gives Globest.com readers plenty to think about in this conversation.

GlobeSt.com: We've been hearing a lot about store closings. What is coming along to take their place?

Mark Dufton: There's certainly not enough retailers to backfill the spaces that are being vacated. Year to date, announced store closings are up nearly 100% over last year, and openings are up too, but not nearly at that rate. A lot of the openings you're seeing are, number one, non-mall locations, and number two, they're quasi-retail or non-retail: gyms, medical centers and the like. We're still seeing demand at the strip center level, and some at the power center level. Dollar stores and discount retailers—such as the TJX concepts—are what we're seeing most in terms of expansion, along with non-retailers.

GlobeSt.com: You go to a strip center anywhere in the country and you will see fitness centers and so on—but not in mall locations.

Dufton: Right. We're just at the beginning of the absorption of this wave of vacancies. You have all of these Sports Authority boxes and hhgregg boxes, and the backfill tenants are still to be determined. In terms of the mall retailers, that could be particularly problematic.

GlobeSt.com: Is this a concern for mall owners across the board, or is it more likely to be a problem for some of the lower-echelon properties?

Dufton: It's definitely not the A malls that are facing this struggle at this point. They're still going to have some vacancies from liquidations, but they have a higher probability of being able to backfill these spots. You're really talking about the B and C-plus malls.

GlobeSt.com: For B and C properties, these closings undoubtedly put a crimp in their ability grow rents. What measures are they taking to counteract this?]]]

Dufton: They're looking more aggressively to non-retail uses: entertainment, schools, clinics, gyms, restaurants—anything that can help drive some traffic there. But it's going to be a lost cause for some of these malls. You're already starting to see some of them come up for sale.

GlobeSt.com: Presumably at a substantial discount to what they would have been worth a few years ago.

Dufton: Some of them have no value now. The cost of carry is just not worth it. Their debt service coverage ratios don't hold up anymore. Thankfully, interest rates haven't risen as much as everybody thought they would.

GlobeSt.com: The threat from e-commerce is a talking point that comes up frequently. How serious is it?

Dufton: It's obviously a big piece of the puzzle, but there are other factors. There's changing demographics in retail and how retail goods are purchased. Millennials do not shop in the same way that prior generations did, certainly; it has to be more experiential for them in terms of entertainment and dining options. Retail is going to need to adjust to that. Incomes have been stagnant for a fairly extended period, and that also has affected retail substantially.

GlobeSt.com: We've been talking about the steps that owners have been taking. What are retailers' priorities?

Dufton: Certainly the pace of store openings has slowed down significantly, and when retailers do look at opening new locations, they have a much more critical eye. It's a much longer process, because they're trying to preserve their capital. I think most of them are focusing on the closing and restructuring side at this point. From a closing perspective, if a store is marginal, they'll usually look to ride it out until the end of the lease term, because it's not a good investment to pay to terminate the lease.

You're seeing a lot more lease restructuring attempts when a store comes up for renewal or there's an option period. They're trying to control their occupancy costs, and to limit the amount of space, to rightsize the box. Do they really need the size of box that they have right now? Long-term, can they live with something smaller?