Store of the Future   //   December 1, 2023

Class A malls continue to be in high demand

Even as consumer spending cools down across the U.S., retailers continue to target upscale malls for expansion.

In the past month alone, Toys ‘R’ Us and Wilson Sporting Goods opened sprawling stores at the Mall of America, the largest shopping mall in the country. Gucci expanded into two major Southern California malls, the Americana at Brand and the Grove, in April and August, respectively. Also in August, menswear designer Todd Snyder opened a boutique at Bal Harbour Shops in Miami, one of the most profitable malls in the U.S.

Despite talk that ‘malls are dying,’ Class A malls, which are typically located in high-income or tourist destinations, are prospering. Traffic at top-tier malls in 2022 was up 12% from 2019 levels, according to a June report from Coresight Research. In September, Simon Property Group, the largest owner of malls in the U.S., reported that its malls had a 95.2% occupancy rate, up from 94.5% a year prior.

There are a few factors at play in these malls’ success, sources told Modern Retail. Similar to how outlets are thriving because they appeal to today’s budget-conscious consumer looking for discounts, Class A malls have managed to survive by catering to affluent consumers less fazed by inflation. Many Class A malls also invest in entertainment or events to capture consumers’ interest. The Grove, for example, hosts concerts and puppet shows, while Scottsdale Fashion Square holds “Pet Photo Night” and plays live music.

The rise of Class A malls also comes as many middle-tier and lower-tier malls have closed. Shopping centers struggled at the onset of the pandemic, and many shut their doors and never reopened. Northgate Mall in North Carolina, Cascade Mall in Washington and the Metrocenter Mall in Arizona, for example, all closed in 2020. Firms have since stepped in to tear down and redevelop the land.

John Mercer, head of global research and managing director of data-driven research at Coresight Research, also attributes the difference in performance to the rise of e-commerce. “The profusion of choice and channels has chipped away at an unexceptional middle ground in retail and supported an outperformance in more desirable locations and formats,” he said in an email to Modern Retail.

‘Hitting top markets’

Little Words Project, a jewelry startup founded in 2013, is opening its first mall store ever at the Mall of America on Saturday. The brand didn’t necessarily have malls in mind from the start, CEO Adriana Carrig told Modern Retail; “not to say that there was any judgment [but] I just wasn’t confident that they were going to last forever.”

However, after seeing how some malls managed to ride out the pandemic, Little Words Project was eager to give it a try. For the company, “it was about making sure that we are hitting top markets in the best possible way,” Carrig explained.

Similarly, Toys ‘R’ Us, which is attempting a comeback after closing all of its stores in 2018, said it considered expanding to the Mall of America “a must.” “There is the perfect mix of entertainment and retail that makes it a highly trafficked go-to-destination for families year-round,” Jamie Uitdenhowen, executive vice president of Toys ‘R’ Us at parent company WHP Global, said in a statement on Nov. 13. WHP Global is in the process of opening 24 more Toys ‘R’ Us flagships, as well as locations in airports and on cruise ships.

Little Word Projects’ new store, its eleventh, will be similar in size to its other stores (which tend to average 700 to 1,300 square feet), with arched walls highlighting its jewelry and shelves for third-party goods like candles. It will also have its usual beading table where people can make their own bracelets — “our biggest driver, we think, of the traffic that comes in,” Carrig said. Little Words Project has plans to go into more malls in the future, with Carrig teasing an early 2025 opening in a “pinnacle mall” that she grew up going to.

One of the factors that drew Little Words Project to the Mall of America — besides its size and spectacle — was its attractions, events and emphasis on experiential retail, Carrig said. Besides stores, the mall is home to theme parks, escape rooms, aquariums and miniature golf courses. This is typical of some Class A malls, who, with a larger amount of revenue, can put funds towards add-ons to build their brand image.

Along these lines, many Class A malls today are working to establish themselves as mixed-use lifestyle centers, places where visitors can shop, eat, exercise and work. With this, “Class A malls are continuing to strengthen their position as social destinations that meet a variety of consumer needs,” Michael Brown, partner and Americas Retail Leader at Kearney, told Modern Retail.

Coresight’s Mercer also expects many malls to include office, hotel and residential space, “providing multiple benefits to mall owners,” by the year 2030.

Ultimately, with Class A malls’ many uses and highly-sought-after vendors, “over the medium term, we expect higher-tier malls to accrue a greater share of the total dollars spent at malls,” Mercer said.