A grim future for the all-American mall
Reality has set in on shell-shocked consumers, and copious spending is a thing of the past.
James Quinn
lives and writes in Harleysville
Driving around these days, one notices more and more "For lease" signs on vacant retail buildings. Strip malls - inhabited by karate studios, pizza joints, and video stores - have felt the initial onslaught of consumer de-leveraging. As the pace of retailer collapse accelerates, larger malls will begin to go dark. Once-bustling centers of conspicuous consumption, built on a foundation of consumer debt, will become ghost malls.
For the last 20 years, American consumers have carried a global burden on their broad shoulders. This yoke didn't seem so heavy with the help of steroids. The steroid of choice for American consumers was debt.
Americans have bought everything they desired for two decades. They used cash-out refinancing, credit-card debt, and auto loans to live far beyond their means. They used home equity to cover everyday expenses such as groceries, cigarettes, beer, gas, and clothes. Eating your house was never so easy.
The enormous amount of home sales and equity extraction led to titanic demand for home furnishings, remodeling services, appliances, electronic gadgets, BMWs, and exotic vacations. This led retail and restaurant chains to make immense plans for expansion, based on extrapolations of this false and unsustainable demand.
It has been a wild ride, but the journey is over. Consumers can't score steroids from their dealers - the banks - anymore. The pseudo-wealth has begun to disappear, and the unraveling will accelerate in 2009.
A permanent psychological change has occurred in American consumers. They have lost at least $10 trillion in the value of their homes and investments in a few years. No amount of fiscal stimulation will reverse this trauma.
The savings rate will increase from about zero to at least 8 percent. The impact of a retrenching consumer will be felt far and wide, from Des Moines to Shanghai. Consumer spending has accounted for 72 percent of our gross domestic product. It will revert to the long-term mean of 65 percent, at best.
There are at least 1.1 million retail stores in the United States, according to the Census Bureau. There are about 1,100 malls, not counting thousands of strip malls. These numbers will be considerably lower by 2011.
According to the International Council of Shopping Centers, about 150,000 stores are expected to shut down this year. That will be on top of the 150,000 that closed last year and 135,000 the year before that. The opening of new stores will grind to a halt in 2009. At least 700,000 retail jobs will be lost.
Major retailers that have closed or will close stores include: Circuit City (728 stores), Linens-N-Things (500 stores), Bombay Company (384), Sharper Image (184), Pacific Sunwear (154), and Foot Locker (140). Other large retailers are closing underperforming stores and scaling back expansion plans. By 2011, at least 15 percent of the existing retail base will have gone to retail heaven.
As Americans realize they don't "need" $5 Starbucks lattes, Jimmy Choo shoes, Rolex watches, granite countertops, and stainless-steel appliances, our mall-centric world will end. Major mall-anchor retailers such as Macy's, JC Penney, and Sears are in for a heap of trouble. As low prices become the only factor driving retail sales, retailers will experience minimal profits, further restricting expansion and renovations.
With shrinking cash flow, looming debt-refinancing, and dim prospects for a resumption of conspicuous consumption, mall developers are destined for a bleak future. Picture Clint Eastwood from his spaghetti Western days, riding a horse through the middle of your local mall, with tumbleweeds blowing past the vacant KB Toys and Victoria's Secret.