20% to 25% of American malls will close within five years

Before the coronavirus hit, America’s most valuable malls were driving billions of dollars in sales annually, contributing hundreds of millions of dollars to local tax coffers. Now, nobody knows what those numbers are going to look like coming out of the Covid-19 crisis — other than definitely being a lot less. 

Between 20% and 25% of American malls will close within five years, according to a report from Credit Suisse. That kind of plunge would be unprecedented in the nation’s history.

In 1970 there were only 300 enclosed malls in the U.S., and now there are 1,211 of them. In fact, despite the recent turbulence in the retail industry, the number of malls open has actually edged higher every year.

If the analysts at Credit Suisse are right, that trend line about to turn — sharply — in the other direction.

The report estimates that as malls close, online sales will grow from 17% of retail sales today to 35% by 2030.

Credit Suisse estimates that a record 8,600 stores will close this year alone. That’s far more than the record 6,200 stores that closed in 2008, the first year of the Great Recession.

Many department store chains that serve as major anchors of malls are closing wide swaths of stores, including Sears Holdings (SHLD), which is closing 150 of its Sears and Kmart brand stores, JCPenney (JCP), which is shutting 138 stores, and Macy’s (M), which is closing 68 stores.

Department stores were already in distress, and the outbreak is exacerbating their problems. Green Street Advisors, another real-estate services firm, estimated as many as half of mall-based department stores could close in the next two years. But clothing chains and department stores also face a greater threat of e-commerce cannibalizing store sales than some other mall occupants, such as movie theaters.

Less demand for mall space also means mall operators will probably have to lower rents, bringing in less income. CoStar forecasts mall rents will drop 12.5% in 2020 compared to last year.