Echoes in the Food Court

Written By Brian Schreiner

Weekly Investment Update | By Brian Schreiner

There are growing indications that consumer retail is slowing. Recent reports highlight weaker-than-expected retail sales, particularly declines observed in January, suggesting a pullback in consumer spending.

A bifurcation in the consumer market has emerged, where higher-income individuals have been able to maintain spending levels, while lower-income counterparts have significantly curtailed theirs.

In fact, the top 10% of earners—households making about $250,000 a year or more—now account for 49.7% of all consumer spending.

Discretionary spending in particular is slowing and the retail sector overall is experiencing a marked deceleration. Real retail sales figures, adjusted for inflation, further reinforce this trend, falling below anticipated trend lines.

Malls in the United States continue to face unprecedented challenges and the the rate of decline in recent years has been relentless. Vacancy rates are now at their highest levels in 25 years. In the first quarter of 2025, foot traffic plummeted by a staggering 47% compared to pre-pandemic levels.

Coresight Research expects store closures to double in 2025, affecting large and small business owners, property values, municipal budgets, and local employment markets. Since 2016, mall property values have declined by an average of 45% nationwide. Credit Suisse predicts 25% of America's remaining malls will close by 2027. 

Solutions are complex, with some malls transitioning to mixed-use facilities, but many lack the capital for such transformations. The implications for commercial real estate are severe, with increased default rates on mall debt. The traditional mall model is becoming unsustainable, and adaptation is crucial.

Meanwhile, malls are losing customers fast and as the retail sector slows more broadly, malls are under serious pressure. Articles like this one and Podcasts like this one take a more nuanced view, highlighting the transition of many malls into office space, entertainment venues and even residential properties. But this data from Finance Flow on some of America’s largest malls is grim:

  • The King of Prussia Mall outside Philadelphia (our local mall), was once among the largest malls in the country. It has lost 42 stores since January 2024, with major tenants downsizing or considering closure.

  • The American Dream Mall in East Rutherford, NJ, near MetLife Stadium, was constructed at a cost of $5 billion and is now struggling with a 55% occupancy rate. It reported losses of $300 million in 2024.

  • Destiny USA Mega Mall in Syracuse, New York, has seen a 65% decline in visitors since 2019, with over 200 vacant storefronts. The Mall’s owner, Pyramid Management Group, recently defaulted on its $715 million mortgage payment.  

  • The Woodfield Mall in Schaumburg, Illinois, has lost four anchor stores in 18 months, with a 38% vacancy rate and a 45% drop in property values since 2022. Foot traffic has decreased by 52% compared to 2019 levels.

  • The Westfield Valley Fair Mall in Santa Clara, California, is experiencing a mass exodus of luxury retailers, losing 27 high-end stores in a year and its property value has decreased by $320 million.

  • The Mall at Short Hills, also in New Jersey, has seen its property value decline by 38%, with high-end retailers moving to street-front locations. 

  • The Fashion Show Mall in Las Vegas has seen gaming revenue surpass retail sales, with retail occupancy dropping to 72%. 

  • The Ala Moana Center in Honolulu has seen tourist spending drop by 55% compared to 2019 levels.

  • Roosevelt Field mall in Garden City, New York, has lost 32% of its small business tenants. 

  • Scottsdale Fashion Square in Arizona has seen its average store size shrink by 40%.  The Mall’s luxury wing has lost 15 high-end brands in the past year.

Malls are suffering and transforming at the same time. Grade-A retail properties are likely to survive and continue to emphasize experiential, high-end consumer engagement. However, many grade-B and C properties will be forced to closed or repurposed into mixed-use developments, integrating residential, commercial, and recreational spaces.

In my view, its a welcomed shift towards a wider variety of amenities and lifestyle offerings, moving away from the retail uniformity across many American towns. Hopefully the big private equity firms stay away. PE has been the force behind the undesirable trends in uniformity over recent decades. Please, not another PetSmart or Buffalo Wild Wings. α

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Interesting things I came across this week…

  • CLOs vs. CDOs: Understanding the Difference (Van Eck)


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Brian Schreiner
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