Photo: A Syn

Sbarro, a pizza retailer known for its presence in shopping malls is bankrupt – again. It cited a decline in mall traffic for its second bankruptcy in just three years.

It's a worrying sign for traditional retail. Malls aren't so "hip" any more.

Losing the core customer
Market research firm ShopperTrak measures mall and store traffic at more than 800,000 malls and stores around the country. In the last few years, its data has revealed a precipitous decline in fourth quarter holiday shopping -- the kind of shoppers retailers need to be profitable.


Traffic as percentage of 2010 traffic. Source: ShopperTrak. Photo: YisongYue

As traffic declines, vacancies at major malls are elevated. Reis Reports data reveals vacancies at regional malls are just now crossing back into levels not seen since 2009. Vacancies at strip malls -- outlets in which each store entrance is outside -- have yet to recover to their pre-recession levels.


Source: Calculated Risk Blog

Blame the Internet?
Surprisingly, weak trends in malls of all kinds seem to have minimal effect on other types of retail outlets. Realty Income Corp. (NYSE:O), which leases property to a myriad of business from fast food joints to drug stores, reported a vacancy rate of just 1.8% in February.

For its part, Realty Income Corp. is managed by smart operators. The company steers away from traditional mall retailers, seeking out good tenants like dollar stores to stay recession- and Internet-resistant.

Although malls have yet to go the way of the dinosaur, online shopping is taking a greater share of shoppers' wallets. The Bureau of Labor Statistics reports that e-commerce made up 6% of all retail sales in 2013, up from just 3.5% in 2008. And growth has been consistent -- e-commerce grew in all but three quarters of the last 7 years.


Data from Photo Credit: HM Revenue & Customs

From mall rats to real estate investors, this is a trend that should be carefully studied. Malls appear to be in a secular, and persistent, decline. Sbarro may be the first victim of declining malls, but it certainly won't be the last.

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