The slow death of the American shopping mall is not evenly distributed. A disproportionate number of recent high profile store closure announcements have been in communities that are already struggling. It’s creating a retail Rust Belt. This version of the Rust Belt won’t be as easy to wrap up into a political platform as the manufacturing Rust Belt, and creates different types of challenges for the communities impacted.
The bad news for physical retail seems to come in waves, and last week was a particularly bad one. Macy’s announced another round of store closures. Sears did as well. The Limited announced it was closing all of its brick and mortar stores to focus on its online business. This is all happening in an overall reasonably good economy, with an unemployment rate below 5 percent and accelerating wage growth. The next recession, whenever it comes, is likely to produce a “shock and awe” moment for malls and physical retail.
These store closures aren’t being evenly distributed. Companies are keeping, even investing in, their most vibrant and profitable stores, which tend to be in wealthy communities. It’s the least profitable ones, oftentimes in stagnant, lower-to-middle-income suburban communities, that are being shuttered. In this latest round, Sears is closing seven K-Mart stores in Kentucky, compared to four in California. They’re closing eight Sears stores in Ohio and Pennsylvania, compared to just one in Texas.
A common refrain when big box stores close is, “People can just shop online.” But it’s more complicated than that. The loss of big box stores and eventually malls means a loss of social and communal space for communities at a time when there are fewer and fewer social ties between us. Dead malls leave behind a huge physical footprint and infrastructure such as sewer connections that needs to be maintained, while also representing a tax revenue blow to a community between lost property, corporate, income and sales tax dollars.
The closing of a mall in a community also represents a sense of loss, but it’s a different kind of loss than when a factory closes. With the factory, as we’ve seen in politics over the past 18 months, a community can blame it on a bad trade deal or foreign workers. A community can hold onto false hope about attracting a new factory or other similar form of production. But when a mall closes, who do you blame it on? Amazon? The internet? And the loss it represents is not some other community winning over the factory jobs, but rather that capitalism has determined that your community no longer matters.
A walk through Midtown Manhattan or Union Square in San Francisco would suggest that physical retail is not going away, but its new iteration does not give much hope to a lot of communities in the process of losing their malls. The emerging form of physical retail is “experiential retail,” as has been built at Santana Row in San Jose, California, or Avalon in Alpharetta, Georgia. It tends to be high-end development with a mix of uses including residential, dining, shopping and perhaps some office or hotel space. It’s great for the communities that can afford it, but chef-driven restaurants and a handful of luxury boutique shops don’t make economic sense most places.
How are we going to think about these communities that are losing their malls? They occupy a space we haven’t seen in America before. They are neither rural and agrarian nor urban, and what is a suburb without a mall or much in the way of physical stores? Are Facebook and fast food enough to sustain these communities?
What will come to define their politics, and who will pay for their infrastructure? It would be quite easy to tie together a narrative of factory decline and physical retail decline into a broader narrative of communities that haven’t made it into the 21st century the way thriving coastal and Sun Belt metros have. And at some point, tax cuts, fewer regulations, and restrictive trade deals will be seen as insufficient to address these challenges.
Because the timing of any recession and broad-based mall closures may still be a few years away, this may not be an action item for first term Donald Trump, but it probably will be for his successor.
By Conor Sen
Conor Sen is a Bloomberg View columnist. He is a portfolio manager for New River Investments in Atlanta and has been a contributor to the Atlantic and Business Insider. – Ed.
