Loren Keim on What Comes After Malls?

In this episode of Lehigh University’s College of Business IlLUminate podcast, we are speaking with Loren Keim about the decades-long decline of shopping malls and retail stores, and how the in-person shopping experience is likely to continue to change.

Keim, who earned his undergraduate degree in management and his MBA at Lehigh, is a professor of practice in the Perella Department of Finance’s Goodman Center for Real Estate. He teaches Case Studies in Real Estate as well as the two-semester Real Estate Practicum. He is also an author of real estate “How to” books, an international speaker, and the owner of Century 21 Keim Realtors, with more than 90 brokers and associates in Eastern Pennsylvania and New Jersey.

He spoke with Jack Croft, host of the ilLUminate podcast. Listen to the podcast here and subscribe and download Lehigh Business on Apple Podcasts or wherever you get your podcasts.

Below is an edited excerpt from that conversation. Read the complete podcast transcript. 

Jack Croft: A report by Coresight Research last year estimated that 80,000 retail stores are expected to close in the next five years, and about one quarter of America's remaining shopping malls are expected to close in the next three to five years. Let's start with the period prior to 2020. What were some of the primary factors involved in what's been dubbed as “the retail apocalypse?”

Loren Keim: In the 1960s, we transitioned away from those downtown shopping districts to the comfort and convenience of indoor shopping malls, getting us out of the rain and snow. And at the time, the press lamented the demise of the downtown shopping experience. Thirty years later, we started transitioning away from indoor malls back to shopping centers that were not enclosed, because the pace of life was moving faster. We wanted to get in and out of stores more quickly. We didn't have time to park in the parking lot and hike into the mall to find that perfect store.

Over the last decade or more, we've been moving more toward the convenience and speed of ordering products online and having them delivered. It's no longer fast enough to stop at a store and run in for our purchases. But convenience isn't the only reason bricks and mortar stores declined, of course. The other primary reason people shop online is that they can search for nearly anything, they can find it, and they can have it delivered.

But when we're talking about retail collapse, you do have to understand that there are also healthy retail stores. And as much as we talk about the effects of Amazon, Amazon, in 2020, accounted for less than 10% of retail sales in the United States. Although they spiked significantly in 2021 so far. The revenue for Walmart in 2020 was just under $560 billion and [Amazon] was at $386 billion and CVS wasn't that far behind at $268. This year has been a little different. June 2020 through July 1st, 2021, Amazon did, for the first time, overtake Walmart with skyrocketing sales. They were about $610 billion.

But Amazon also recognizes an opportunity in bricks and mortar, and they have plans to build some retail stores. But it's a little bit of a different dynamic. They're looking at a footprint of a store that's going to be about a third the size of Walmart stores. And that's going to be, possibly, another shift in the way consumers shop.

Croft: In what ways did COVID-19 either accelerate or worsen the trends that you were talking about? And is that, in your mind, at this point, irreversible? Has the damage been inflicted?

Keim: The pandemic kind of accelerated that move to online purchases. Customers were afraid they'd contract COVID if they stopped at stores during the holiday season and they started ordering online. But the other thing that happened was it tilted the playing field further, for large department stores particularly, and for clothing retailers and other retailers that didn't sell food or medicine or tools.

Particularly, if I look at the New Jersey, Pennsylvania market - many places across the country - Walmart and Target were allowed to stay open because they sold food and tools, and those were considered necessities. Those stores that supplied just clothing or home goods or decorations were forced to close for several months. A lot of these department stores and specialty stores already were having problems prior to the pandemic. And you start taking two, three, five months out of the ability to generate any income at all, it just pushes them over the edge. Those purchases that would have helped preserve some of those department stores were spent online or in stores that were allowed to remain open.

Croft: What does the future of shopping malls look like? And what are some of the most creative and promising changes you've seen that perhaps offer some reason for hope?

Keim: I think shopping centers have to create a mix of uses that shoppers can't do online. Gyms and fitness centers, entertainment, food, health and wellness are some of the keys to creating that traffic. Another approach might be to embrace the e-commerce marketplace and perhaps create some storefronts that are truly fulfillment centers, which is what Amazon is looking at, where customers can stop to pick up products without worrying about the next person stealing it off their porch when something's being delivered from an e-commerce site. I think there's going to be a lot of creativity put into the retail experience over the next decade, and we'll see how it shapes up.

When you look at the holiday season coming up, I think we're going to see a pretty strong in-person shopping experience this year, at least, for the reason that people are worried about the distribution network. Also, part of the reason is that so many individuals didn't get to experience shopping for gifts last year. If you recall, the highest number of COVID cases were from that mid-December period to early January, and that affected both those who are afflicted and their families. I was actually hospitalized myself on Christmas Day last year. There were a large percentage of the population that were really worried about contracting the virus and they stayed home.

And although I'm not a psychologist, I believe that people tend to overcompensate when they miss something. I think many people missed that physical experience last year of shopping, and they seem determined to make it up. We're already seeing heavier volumes of people coming into some of the major retailers so far this year, prior to Thanksgiving, than we did last year and the year before, actually a little bit higher than 2019.

The second reason is that expectation that shoppers won't be able to get packages delivered on time for the season. Even last year, if you recall, there was an issue with packages arriving later and later. And that concern, the potential issues of getting packages delivered, is likely to influence consumers' decision on how to shop during at least the upcoming holiday season. One of the primary reasons so many people shop online is that they can search for nearly everything, find it, and get it delivered. It's easier than driving to the store and looking for that perfect toy or gift. But that bad taste of not receiving gifts on time last season, I think it's going to be reflected in more shoppers going retro and shopping in-person.

Keep in mind that even if we have a shift of 5% back from online purchases this year to bricks and mortar, that could be an enormous windfall to bricks and mortar. That is really just this season, the holiday season of 2021. The future of bricks and mortars is, of course, uncertain. There's always going to be an in-person component to shopping, but that in-person component may continue to erode. And perhaps last year's 10% of retail sales being done by Amazon and about 15% of retail sales being done through e-commerce could grow to 25% or 35% through e-commerce. But there's still going to be that physical component of shopping.