More than 1,300 Department Stores Closed Last Year — Here’s How Malls are Scrambling to Survive

Even though department stores sell a wide range of goods, including homeware and bedding, apparel makes up more than 50% of department store revenue, according to Schmidt. Occasion apparel, specifically, like suits and prom dresses, has been a major source of revenue as well.

However, as consumers’ comfort level with online shopping rose and the pandemic caused the cancellation of most formal occasions, department stores found that relying heavily on apparel was not profitable.

The move away from higher-end goods also contributed to department stores shuttering, says Tyler Higgins, retail practice lead and managing director at global consulting firm AArete.

“The fun side of department stores and the big luxury they represented, was that shoppers could go there for the unique and diverse product set,” he says. “Over the past 20 years, this has changed, where brands like Macy’s have migrated to the middle and focused predominately on fashion. This trend set the foundation for their potential demise.”

Not all department stores are experiencing the same decline, though. Nordstrom, a high-end department store, has fared well in recent years and “is on the way to recovery, or has even recovered,” from the pandemic, Higgins says. This is because it offers a wide variety of products online while sustaining a luxury experience in stores. And, unlike Neiman’s or Saks, it appeals to a younger audience.

Despite dramatic closures, Higgins says department stores will likely not disappear. “The demise of department stores has been a bit overstated,” he says. “The bigger story to come is their soon-to-happen reinvention and how they evolve into an entirely new concept.”

As the former retail giants scramble to survive, consumers will likely start seeing the reinvention in the form of fewer clothing options on racks and more products for everyday needs. “Macy’s has now communicated that they are going back to their origins, investing in new product lines such as toys, health and fitness, pets, and home decor,” Higgins says.

Just as the department store will have to evolve to survive, so will the mall, says Jeff Green, a partner with Hoffman Strategy Group. Green focuses on mall redevelopment and mixed-use feasibility, a type of urban development that blends multiple land uses, like residential, commercial, and entertainment, in one area.

Much of a shopping mall’s value comes from where it is located: “Malls were generally built on the best pieces of real estate,” he says. For example, many are off major highways around heavily populated cities and suburbs. “That real estate value is still there, and in fact, has likely increased. You’re sitting with a building that has no value on top of real estate that has high value.”

To capitalize on this real estate, mall owners are likely to shift vacant retail spaces into mixed-use properties that include shops as well as other kinds of businesses such as apartment rentals and restaurants.

Some already have. “A great example is 100 Oaks Mall in Nashville,” Green says. The mall was half empty in 2005, a year before it was bought by new developers. In 2006, Vanderbilt University Medical Center rented 400,000 square feet of space from the new developers. Now, the the bottom floor is retail, the top floor is medical offices, and the mall is more profitable. It is operating at full capacity and all retail sales are outpacing national averages, according to the Commercial Real Estate Development Association.

Lots of malls will be forced to get creative with their space, Green says. Paradise Valley Mall in Phoenix, for example, is being redeveloped as a mixed-use property. Instead of it being primarily retail, the plan also includes multifamily housing, a grocery store, restaurants, offices, and self-storage.

Retail spaces might also look different, as malls find ways to offer more interesting shopping experiences, Brown of Kearney says. Malls might start “creating a space where online-only brands can get their feet wet,” he says, or provide more spaces for pop-up stores.

Like 100 Oaks Mall and Paradise Valley Mall, Vista Ridge Mall in Lewisville, Texas, was losing tenants. In 2017, only 72% of the mall was leased, according to reporting from the Dallas Morning News. That year, it was bought by ICA Properties, an Odessa, Texas-based real estate management company, for $17.3 million, far less than the appraisal value of $34.5 million, and renamed Music City Mall.

ICA CEO John Bushman had already revitalized a mall in Odessa, Texas (which he also renamed Music City Mall), and believed he could do the same with Vista Ridge. Bushman’s strategy is to make the mall the site of musical acts and family-friendly experiences that help draw in crowds.

Like other malls, Music City Mall hosts a Halloween event where kids can trick-or-treat from store to store. It also has other unique offerings: One of the first new attractions was an 8-foot-tall stone tablet engraved with the Ten Commandments.

And, like the name implies, there’s a heavy emphasis on live music. “We have two pianos throughout the mall and our center stage,” says Natalie Boyer, the general manager of the Lewisville’s Music City Mall. “We have people performing from open to close. We have local schools and bands that do performances.”

Music City Mall has lost many of its anchor stores. Dillard’s remains open, but JCPenney and Macy’s both closed last year. Sears was also an anchor store before it closed, pre-pandemic. In its place on the first floor will go a Korean grocery store. On the second, the plan is to install games, like virtual golf.

The mall was hit hard by Covid, Boyer says, but as consumers become more comfortable socializing, she is hoping the mall’s experiences continue to drive traffic. Already this year, shoppers have slowly returned. “Our traffic the last 13 weeks straight has been up,” she says. “Not huge. Some weeks it’s up 10%, some weeks it’s up 4%, so not huge, but up.”