Tea leaves at the ready, quite a few heavy hitters in commercial market prognostication have envisioned the US marketplace circa 2039. One in particular caught my eye:
As Ken Riggs, CEO of Real Estate Research Corp. puts it: “Most shopping malls will be extinct,”
“[The shopping center market] has been a Darwinian environment since the 1990s with the advent of big-box retail and the ‘Wal-Marting’ of the world—and it will stay that way.” In other words, expect malls to continue their decline due to the rise in e-commerce, with only those consistently producing very strong revenues still doing business in 25 years.”
(Over)supply And Demand
If you ask me, there’s two problems with this: Darwin’s concept is misapplied here (actually the phrase is attributed to a different scientist named Spencer.) “Darwinism” is regularly misapplied in business writing to mean “survival of the fittest”, e.g. describing an arena where competition and inexorable laws of supply and demand settle all questions of capital allocation. That implies a efficient market. But nobody could look at shopping malls nationally and imagine that it’s an efficient marketplace: generally speaking, supply is so heavy and demand so comparatively flexible and spotty — again, I’m speaking nationally in the aggregate because many individual markets are different — that the only thing you can say about its efficiency is that its’ efficient at building shopping centers.
The “Walmarting” or consolidation of the retail marketplace is what happens when aggregate consumer demand remains unsatisfied and needs a new home. That’s happens when it makes sense to aggregate that demand under one roof. But we have plenty of indications that demand itself isn’t being shifted per se, but was overestimated in many places. Waves of closures such as the recent ones of national chains lead us in this direction.
In fact, there are national numbers that imply that supply of retail space in the US was on the high side to begin with. According to the 2007 Economic Census, there were 1,122,703 retail establishments in the United States and a total of 14.2 billion square feet of retail space. That means that there was approximately 46.6 square feet of retail space per capita in the U.S., compared to two square feet per capita in very rapidly growing India, 1.5 square feet per capita in Mexico, 23 square feet per capita in the United Kingdom, 13 square feet per capita in Canada, and 6.5 square feet per capita in Australia.
These things say “correction” to me. New Economic Census numbers could illuminate this further when they begin appearing later this year.
Not A Zero-Sum Game
But the shifts in shopping centers and the role of demand isn’t the only place where the predicted death of the shopping center falls short. It’s in the claims about electronic commerce.
I agree that twenty-five years of growth in e-commerce is likely to come, and that some of that will be at the cost of traditional retail. Yet we have to remember that brick and mortar vs. e-tailing is not a zero-sum game all the way.
The fundamental need of Americans to put their hands and eyes on products hanging on racks, to travel, to make a day of it, to, in a word, shop in the physical world, is in my opinion unlikely to radically diminish in twenty-five years. The industry may have overbuilt retail space, but it hasn’t overestimated what the personal automobile and consumer freedom really imply: choices for consumers are the life blood of our consumer economy. To the degree that electronic commerce has displaced purchasing in physical locations, it’s because of the net addition of choice and an opportunity for convenience. That doesn’t mean every choice made is best made online. Far from it: we will always have physical bodies and needs beyond what shipping goods can deliver. We will always need to spend time with some prospective purchases.
Extinction for shopping malls just isn’t in the cards.
Shopping mall (Photo credit: pix.plz)