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As U.S. Retailers Struggle, The End Is Near For Malls

ROBERT SIEGEL, HOST:

Here's a number that gives you a better sense of how much shopping centers in the U.S. are overbuilt. For every person in America, there are 23 square feet of shopping center space. That's the highest number for anywhere in the world. Runner-up is Canada at 16 square feet. Christopher Leinberger says that's starting to change.

CHRISTOPHER LEINBERGER: The previous big transformation of retail was from walkable urban in the early 20th century - you know, the main streets - to regional malls. Well, we're going back now to the 21st century version of main street.

SIEGEL: Leinberger is the chair of the Center for Real Estate and Urban Analysis at George Washington University. When the economy inevitably enters the next recession, he expects 30 percent of shopping malls, both strip malls and regional malls, will shut down.

LEINBERGER: It's the middle-market malls that are in biggest danger of going dark. The fortress malls - those huge, you know, 1-and-a-half-, 2-million-square-foot malls like the King of Prussia Mall outside of Philadelphia - those are fine. But it's the ones anchored by JCPenneys and Sears that are and will go increasingly dark.

SIEGEL: I want you to give us an idea of what the next phase in the life cycle of a shopping mall. It could be a mall that goes dark. You have pointed to an example in Colorado, in Denver.

LEINBERGER: The best national model right now is a project called Belmar. And it took the place of a regional mall called Villa Italia built back in the '60s. And it was a conventional regional mall that was very profitable for 40 years then went dark in the late '90s. And it was bulldozed in the early 2000s and replaced with a grid of streets that was imposed and a high-density, walkable urban place anchored by a movie theater, lots of great restaurants, housing on top, offices on top, the largest advertising agency west of Chicago located there. It's a highly successful, high-density, mixed-use place.

SIEGEL: As we think about all of the kinds of retail that have fallen on hard times in recent years, I guess one of the glaring exceptions to that rule would be the story of the Apple Store. What's so different about the Apple Store?

LEINBERGER: Apple Store demonstrates how retail transitions to the experience economy. That's the next economy to layer on top of the knowledge economy. In retail, the highest sales per square foot retail category are jewelry stores that sell very small things that are very valuable in a very small space. And they can sell $1,500 per square foot per year as a measure of sales productivity. Apple comes out. They're now doing on average between $7,000 and $10,000 per square foot.

SIEGEL: But can you imagine anybody else who could make a go of that model in retail?

LEINBERGER: Oh, yes - clothing. More and more, these retail stores like Bonobos - they aren't selling clothing. They're displaying clothing, and you go home and order it online. So they don't have a warehouse connected with a store. It's just a showroom. People come in. They may try it on. They may just touch the fabric. And then they go home and order. And the sales per square foot of those stores when you combine it with the online sales that they generate are huge. I think they will be approaching the Apple Store. So this is how the experience economy manifests itself in this new walkable, urban world which is the future of our metropolitan growth in this country. And it's going to be very economically productive.

SIEGEL: That's Christopher Leinberger of George Washington University. He walked over to the studio at the Brookings Institution where he's a fellow. Thank you so much.

LEINBERGER: I'm so glad to be here. Thank you, Robert, for all your service. Transcript provided by NPR, Copyright NPR.