There are currently over 500 shopping malls and this number has been rising over the past decade as new shopping centers open to meet increasing consumer demand. Mall operators have been reporting increased sales and higher average sales per square foot due to several factors including strong consumer spending, low unemployment rates, and steady economic growth. This article will explore some of the major drivers behind shopping mall investment and profits so that you can decide whether or not it might be worth your time to invest in malls yourself or whether you should simply take advantage of the perks provided by local malls to their patrons.
Why Do Companies Invest in Malls in the First Place?
The primary reason is customer convenience. Malls are convenient places to shop because you can park close to stores, walk around freely, and get food. The store entrances are also closer together than they would be in an outdoor shopping center. The inside of a mall also has more security against shoplifters than outdoor shopping centers do. In addition, malls have a wide selection of products due to their close proximity to other stores while outdoor shopping centers don’t have as many products because they are farther apart from each other.
Where Are Consumers Spending Their Money?
A major factor in retail investment is where consumers are spending their money. The rise of e-commerce has caused many traditional brick-and-mortar retailers to close stores or declare bankruptcy, but investors continue to invest in new stores in regions that are either growing rapidly or experiencing population changes. For example, Chinese e-commerce giant Alibaba has announced plans to open 1,000 grocery stores over five years. These New Retail stores will sell fresh foods alongside branded products purchased on Alibaba’s platforms. Faced with a changing consumer landscape, grocery chains such as Wal-Mart and Kroger are investing heavily in e-commerce platforms as well as brick-and-shop formats across all product categories.
How Are Retailers Growing their Businesses Through Malls?
Many retailers are expanding by acquiring or developing new locations. The acquisition of Bon-Ton Stores Inc., a department store chain, by an affiliate of its private equity owner, Versa Capital Management LLC, is one recent example. And while investors have focused on Bon-Ton’s online sales issues, they may be missing a bigger factor behind Bon-Ton’s struggles: brick-and-mortar woes that may be hurting physical retail across markets. In 2017 so far, retail earnings are down 2% compared with 2016; returns are down 14%, according to Credit Suisse data.
Malls as Community Spaces
These days, shopping malls aren’t just a place to shop; they’re also a destination where people gather to socialize, have fun, or just escape from their everyday routines. As families continue to relocate closer to cities, many suburbs will lose their draw as shopping destinations. For malls in these areas that still see plenty of foot traffic, there are opportunities for them to become neighbourhood gathering places. Designating portions of your mall for lounging areas that encourage families and neighbours to spend time together is one way you can bring the community back into your mall. Making smart business decisions by investing in mixed-use real estate is another way you can attract more customers and create stronger ties with them.
Tip to invest in shopping malls
To begin your shopping mall investment, look for a shopping center that is well-maintained, has great tenants, is located in a strong market, and has untapped potential to improve traffic flow or drive sales. Then, you’ll want to purchase shares in a REIT. REITs—short for real estate investment trusts—own or manage commercial real estate properties that are rented out to retailers or other businesses. They’re generally considered safe investments because they usually pay reliable dividends every quarter; as long as there are people with money to spend on retail products, these companies should do just fine.
Ways to make money when owning a large shopping center
Simply owning a large shopping center isn’t a lucrative investment, unless you own multiple centers. Making money off a shopping center is all about having successful tenants, who pay rent on time each month. A landlord’s primary concern is making sure that tenants are financially responsible for their businesses. If a tenant fails to pay rent, it is most likely going to cost you money and take away from your profits. That being said, shop around for new tenants before you let your current ones go because it can be difficult to find good quality business owners who will pay rent on time. Finding high-quality businesses may take more time than you’d like, but that’s what being an investor entails sometimes.
Conclusion
If you’re wondering whether or not shopping malls are a solid investment, they are. While space is limited in a typical mall—and therefore high demand can drive up prices—malls also make money off leasing options to big-box retailers. Plus, malls have recently been upping their entertainment offerings in an effort to compete with online retailers; according to Bloomberg Businessweek, one-third of mall-based retail sales come from non-clothing purchases like food or entertainment. This diversification has helped ensure that malls are around for decades to come.
