Evolve or Perish

In the Darwinian sense, “fittest” means adaptable. While class C and D malls with undifferentiated retailers are obsolescing, well-located malls that adapt and diversify stand a good chance of surviving if not thriving.

Since online shopping is largely (not solely) to blame for the retail sector's woes, the fittest mall operators are developing ecommerce-resistant tenant strategies. Traditional anchor tenants are being replaced by entertainment or experiential options, with restaurants playing a key role in filling space and drawing foot traffic. Besides restaurants, you might see a movie theater, bowling alley, adult arcade, fitness center, or kiddie activity hub where a Sears or Macy's used to be.

The goal is to provide an experience people cannot get online. For a mall's inline stores, this may have less to do with what is sold than how it's sold. A kitchenware store, for example, may offer in-store cooking demos while a sporting goods store may offer yoga classes.

Likewise, showroom-format stores providing an omnichannel shopping experience—a strategy used by Apple and Tesla—focus on bringing a brand to life through interactivity.

Millennials in particular tend to be more experiential than materialistic. Although it's been suggested that enticing them to shop offline may be as easy as greeting them with a glass of wine, what they seem to care about are Instagram-worthy experiences. The “retail-tainment” trend of turning stores into entertainment destinations ideally should provide mall-based experiences worth sharing on social media.

Anchors Away

The widespread closure of anchor tenants is a significant threat to shopping malls. Anchor stores succumb not only to ecommerce but also the success of off-price retailers, and their failure often triggers co-tenancy clauses allowing the other mall tenants to terminate or renegotiate their leases.

But vacancies also create opportunities to reconfigure or divide the anchor space into something experiential and potentially more profitable, be it a non-retail tenant, a themed brand store like American Girl Place, or a mix of places to shop, eat, and play. Some mall owners are proactively buying out anchor tenants' leases to get on with these improvements.

These are the fittest, though. If a small number of malls succeed at becoming “virtually indestructible” through reinvention, they will have left behind the husks of lower-tier malls that are beyond saving. Creative tenant strategies won't work across the board because there are simply too many malls and too few viable tenants to fill empty boxes.

But malls that are strong to begin with and adaptable to boot will defy the doomsday predictions.

Chris Roach is the CEO of BBG, a national commercial real estate valuation, advisory and assessment firm. The views expressed here are the author's own.