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C+CT

Future bright for malls, physical retail, says report

August 15, 2018

Quality malls and brick-and-mortar retail can expect robust growth in the coming decade, according to a report by fund manager QIC, which cautions against exaggerating the threat from e-commerce and other challenges.

Low unemployment and an expanding economy will fuel annual consumer spending growth of 4.3 percent during that period, says the report, titled Rhetoric vs reality: Quantifying the long-term outlook for U.S. mall sales. Brick-and-mortar stores will probably realize annual sales growth of about 3.4 percent over the next 10 years, says QIC, with 'A' and 'B' malls seeing about 2.2 percent annually. In-line mall tenants are likely to grow at a yearly rate of about 3.4 percent.

“Despite the raft of negative headlines around the challenges facing the retail sector, it is important not to lose sight of the many nuanced underlying drivers of mall sales growth,” says the report. Though the lower-quality malls may not see much growth, the overall sector will get a lift when the underperformers shift from retail and redevelop their properties for other uses, according to the report.

Fear not e-tail: About 42 percent of all e-commerce sales are generated by brick-and mortar retailers

“Focusing on overall tenant sales can also overstate the head winds facing mall owners," reads the report. "Much of the weakness is concentrated in anchor department stores, where sales have been under pressure for the past decade, due to the failure of department stores to evolve to meet shifting consumer demands. In-line tenants have fared much better, benefiting from a more nimble evolution in their product offering.”

It is also important not to overstate the negative impact of online retail on physical stores. About 42 percent of all e-commerce sales are generated by brick-and mortar retailers, the report says, citing U.S. Commerce Department figures. And despite the growth of e-tail, which doubled from 4 percent in 2009 to 8.9 percent in 2017, sales at brick-and-mortar establishments (including food services) have expanded by 3.2 percent yearly, on average, since 2010.

“By embracing an omni-channel strategy, retailers’ online and offline strategies are increasingly being used to complement each other,” the report notes. In particular, retailers are at an advantage, because shoppers find making returns at a store to be a lot easier than doing so by mail.

Consequently, concludes QIC, the foreseeable future looks bright for physical retail and malls.

By Edmund Mander

Director, Editor-In-Chief/SCT

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