Welcome to the Ghost Town Mall - the future of 4-wall retailing.

There were a couple of interesting articles recently.  The CFO at Williams-Sonoma announced that "they will continue to close additional stores in large [multi-store] markets.  Our strategy for store closings is to optimize our cost per square foot.  The goal is not closing stores per se."  They have found that closing stores causes customers to use other stores or, more often, use the internet.  Over the next 3 years, 25% of their leases will be expiring.  Williams-Sonoma sees that as an opportunity to re-negotiate leases, relocate, or simply close the store.  There was also a great article and discussion over at Retail Wire titled "The Incredible Shrinking Store".  The article quoted several well-known mall operators who were embarking on a strategy to reduce the average size of their stores as a way to improve productivity.

So what exactly is the future of 4-wall retail? 

Some historical perspective is in order.  Beginning in the 1970's and driven by cheap credit, retail selling space began expanding in America at a multiple (sometimes 5-6X) of population growth.  Masking this lopsided growth was the explosive growth of consumer debt and a precipitous drop in household savings, which went from about 12% of household income in the 70's to -1% in the 2000's (you read that right, the average family was routinely spending more each month than they were bringing home).  This went on, largely unabated, for almost 40 years.  The boxes got bigger and bigger, the malls became ubiquitous, and consumer debt grew ever larger.

Then came 2008 and the implosion of this credit-driven spending spree.  This event, among other things, brought the retail supply/demand imbalance into stark relief.  According to research by the International Council of Shopping Centers, at the end of 2008, there were over 14 billion square feet (SF) of total retail selling space in America, 7 billion of which is in over 102,000 shopping centers of various sizes.  This translates into over 46 SF of total selling space and 23 SF of mall space for every man, woman, and child in America.  To put these numbers in context, in Europe, the equivalent numbers range from 1.1 SF (Italy) to 2.5 SF (UK) to 3.3 SF (Sweden).

What now?  America has over 20 times the selling space per person that Europe has.  The savings rate has moved back into the black at a little over 3%.  Ecommerce now represents 8% of total retail sales and continues to grow, at least on a relative scale.  One fact is indisputable.  If evenly distributed, every person in America could go shopping simultaneously and it wouldn't be crowded anywhere.  Retailers are now in a market share, zero-sum game.  The only viable avenue to growth is to take it out of some other retailer's share of pocketbook.  While there are signs that retail in general is stabilizing, it is at a level far below what it was.  There is little indication that America will be returning to its spending patterns of the near past, certainly not for the foreseeable future. 

So what happens to all this retail selling space?  Is Williams-Sonoma in front of a larger curve of retailers reducing their 4-wall footprint to bring it into better balance with demand?  If so, what are the implications, both for retailers and the economy in general?  All these stores carry inventory.  What does it mean for manufacturers and wholesalers?  All this inventory has to be delivered to the stores.  What does it mean for logistics and transportation?  All these stores have associates.  What does it mean for retail employment in America?  Finally, what are the alternative uses of this space?  Are we at the end of something or is this a huge opportunity waiting to be captured?

What do you think?   
 

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