Goodbye, Malls of America

Shopping malls are dying around the U.S. as more people shop online.
Desert or shopping mall? 

Last week, Slate published photos of empty, decaying shopping malls from a new book, "Black Friday.'' The images are arresting, and the timing couldn't be better. Abandoned malls are hot: The Dead Malls Enthusiasts Facebook group boasts almost 14,000 members; a Google search of "dead malls" produces 5.7 million results; and the desolate interiors of these unused retailing meccas keep making cameos in thrillers and horror films.

The images point to some fundamental changes in suburban America and the retailing experience, though urbanists who hope that failing malls will aid downtown revitalization may be disappointed. The reality, as one might expect, is more complex.

Here are a few things to consider:

A Dying Breed: What some writers used to call the malling of America is done. Try to find anyone breaking ground for a new regional shopping mall, those hulking structures with 100-plus stores surrounded by vast asphalt parking lots. Since 1990, when 16 million-square-feet of mall space opened, building has tailed off, and 2007 was the first year in more than four decades when no large malls opened in the U.S. Only one has opened since then, in 2012.

Bad News for City Centers: Advocates of what is sometimes called "new urbanism" suggest that the demise of malls will plant the seeds of an urban renaissance. For example, Ellen Dunham-Jones, a professor of urban design at Georgia Tech, in an article titled "Economic Sustainability in the Post-Industrial Landscape,'' writes:

Yesterday's less sustainable suburban development types - the malls, office park, and commercial strips - are increasingly being retrofitted into more sustainable, more urban places with buildings and spaces that foster communal support, diversity, and reduced vehicle miles traveled.

There's just one catch: Malls that are failing tend to be in areas where the entire local economy is in the dumps, making it hard to see how urban retailing would benefit. In fact, some of the defunct malls are in the center of cities that adopted the suburban shopping-mall model in a futile effort to bring people downtown.

This becomes clear just by eyeballing the list of dying and abandoned mall by state, listed appropriately enough, on the website New York leads the pack at 42, almost all of them upstate. It's no coincidence that five of the 10 slowest growing metropolitan areas cited in a recent study commissioned by the U.S. Conference of Mayors were in upstate New York. Pennsylvania is next on the dead-malls list, with 28; Illinois and Ohio are tied at 27.

Buying Online: This one is pretty obvious. The Web is doing to malls what malls did to downtowns. Anything J.C. Penney -- a classic anchor stores for many big malls -- can sell, seems to be able to offer for less. Amazon also has the luxury of very patient shareholders who don't demand immediate profits.

Online shopping is a force few standard retailers have managed to overcome. Since 1999, when Web sales were insignificant, e-commerce has soared. Sales in 2014's first quarter topped $71 billion, an annual rate of almost $300 billion a year, equal to more than 6 percent of total U.S. retail spending.

Demographics: As Bloomberg News reported last week, young adults just aren’t into malls, marking a significant break from the past. Yes, millennials are more inclined to shop online than their elders, though there's more to it. Young adults seem to lack the gene that predisposed earlier generations of young Americans to go out and buy cars as soon as they had the wherewithal to do so (maybe it's because so many of them don’t have decent-paying jobs). And if there's one thing a mall needs, since they are mostly constructs of the suburbs, it's people who drive.

The sense of community that teens and young adults once found by socializing at malls has also been displaced, in part, by social media. This, along with online shopping and carlessness, helps explain why foot traffic in all stores has declined so much:

Holdout Politicians: Malls are, in large measure, creations of tax policy and regulatory benefits. Mall construction took off in the 1950s, and again in the early 1980s, when changes to the tax code let financiers recover their investments faster with accelerated depreciation schedules, according to historian Thomas Hanchett of the Levine Museum of the New South in Charlotte, North Carolina. Mall developers also took advantage of legal changes in the 1960s and 1970s that allowed companies known as real estate investment trusts to pass almost all of their income through to investors tax-free.

Malls are still getting breaks. Last year, Minnesota's legislature approved $250 million in tax benefits to help pay for a doubling in size of the country's second-biggest mall, Mall of America. The money came from a fund set up to reduce economic disparities between rich and poor areas. New Jersey, meanwhile, has funneled $390 million to a struggling mall project in the Meadowlands known as Xanadu that was supposed to open in 2006. The developers now expect the mall to open in 2016 with a new name -- American Dream.

This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.