How are malls doing?

In the United States, shopping malls are dilapidated and dying, while in China, they are ultramodern, luxurious, and omnipresent. In Italy, the situation is somewhere between these two extremes. According to a recent study by Reno Your Retail Partner commissioned by Confimprese, the premium shopping center and retail park market is evolving, with a projected growth of 10% from 2019 to 2024. These are no longer the large, enclosed multi-story buildings of the 1990s; the new malls are often open-air, featuring modern and designer architecture. In Asia, the “renaissance” of shopping centers has symbolized an economic boom for years in the major capitals of the continent, especially in China, where luxury brands have invested not only in flagship stores but also in malls spread across cities. However, due to last year’s crisis, many of these structures have seen a decline in customer traffic; some have even been abandoned or demolished. Mario Resca, president of Confimprese, highlighted an additional factor to consider: the cautious consumer attitude, influenced by reduced purchasing power and geopolitical instability. This situation calls for shopping centers to present themselves in an innovative way to regain public interest. Nevertheless, market growth can offer retailers valuable insights into the direction to take in developing distribution networks. Notably, in the past three years, 27% of stores have undergone changes of various kinds, including new openings, strategic closures, and relocations.

As reported by the 12th Retail Real Estate Observatory, traditional shopping centers in Italy recorded a modest growth of 1% in the same period, accompanied by a significant decrease in the vacancy rate. These data indicate a renewed interest from retailers in occupying physical spaces, possibly spurred by new strategies to attract customers or by integration with digital channels. On the contrary, factory outlet centers experienced a slight decline of 0.6% over the past five years; however, they proved to be crucial in driving fashion retail consumption in September 2024, with an increase of 3.1%. This phenomenon may be attributed to the growing consumer search for bargains and branded products at discounted prices, especially in an economically uncertain context. Specifically, the fashion sector remains the dominant force in the Italian retail landscape. Examining a representative sample of 71 chains encompassing 15,800 stores, fashion today accounts for 6,280 units, equating to 40% of the total. This not only makes it the category with the largest market share but also the leading segment in terms of both space occupied and revenue generated. The importance of the sector is further underscored by an average annual turnover of 10% CAGR, indicative of sustained and consistent growth over time.

The current model of shopping centers appears in decline, but it is not an inevitable fate. The case of the Sherman Oaks Galleria in Los Angeles, one of the most important shopping centers of the 1980s that underwent a complete transformation in the early 2000s, is an example. From an enclosed building, it was reinvented into an open-air lifestyle center with offices, restaurants, gyms, and integrated multiplex cinemas. There is still ample room for malls to return as versatile community hubs. Shopping centers were originally created for this very purpose, in rural America in the 1980s, where there was a lack of a third place for gathering outside of home and work. However, the old model that malls have relied on since their inception is no longer sustainable: according to a recent IBIS World study, shopping mall revenues have decreased by 4% over the past five years. Although consumers are gradually returning to physical stores post-pandemic, shoppers need new motivations to embrace these spaces again. Change is driven especially by Gen-Z, who, accustomed to online shopping, now seek the in-person shopping experience once more. In fact, according to the International Council of Shopping Centers, young people now value both shopping methods equally, no longer preferring e-retail. One reason seems to be Gen-Z's need for instant gratification, which can only be fulfilled by going to a store. Shopping malls would be the ideal place to offer an in-person shopping experience accompanied by additional and unexpected entertainment. Following the revival of mall brands like Ed Hardy and Von Dutch with the Y2K aesthetic, Gen-Z could indeed have the power to revitalize shopping malls and make them thrive in a new light (preferably not fluorescent).