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The Honolulu Advertiser
Posted on: Sunday, February 15, 2009

Malls still busy but stores inside aren't

By Ashley M. Heher
Associated Press

Hawaii news photo - The Honolulu Advertiser

Mall retailers, like this Libby Lu store at Woodfield Mall outside Chicago, are struggling for sales amid the recession.

Photos by PAUL BEATY | Associated Press

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Hawaii news photo - The Honolulu Advertiser

There are lots of people hanging out at the Woodfield Mall, but they're not spending much and spending less time inside stores.

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SCHAUMBURG, Ill. — Something's amiss at the mall.

The parking lots at the biggest shopping centers are still filling up on weekends, the food courts bustle with hungry customers and walkways are crowded with gangly teenagers and stroller-wielding moms.

Look closely, though, and you'll see there aren't many bags. That's because shoppers at some of the country's busiest retail centers aren't buying. Not much, anyway.

If that sounds like grim news for retailers, consider what their landlords are facing. Unless shoppers begin spending again — soon — some experts worry that the great American hangout may be in jeopardy.

Already one mall in Florida has been foreclosed on, and experts predict that some malls will be forced to close as their tenants shutter their doors in the recession.

The weekend crowds remain steady at Woodfield Mall, a 2.3-million-square foot behemoth in the Chicago suburb of Schaumburg, despite thousands of job cuts by hometown cell phone maker Motorola Inc. But the waves of shoppers filling the mall aren't spending much.

"You're just hanging," said Belinda Turner, a 47-year-old who came to the mall with her husband, 11-year-old daughter and a strict $150 budget. "You can come and you can look and you can have food. But you don't buy. Or you buy small things."

On a recent Saturday, mall walkers started doing laps at 7 a.m. along the two miles of corridors. Shoppers started trickling in when the 300 stores opened three hours later, and crowds filled the marbled floors in the afternoon. In the evening, the mall became a date destination and teenage paradise.

Nationwide, mall traffic has slipped about 5 percent in the past year, but not nearly as much as traffic inside stores, which is down as much as 20 percent, according to ShopperTrak RCT.

"Foot traffic is OK," Morningstar real estate analyst Todd Lukasik said. "But that's not what makes a mall profitable or worthwhile from an economic perspective. People need to take their wallets out of their pockets and actually spend money."

Mihai Dumitriu, who sells Proactiv face wash and cleansers at a mall kiosk, said shoppers once welcomed his offers to package together products into a slightly more expensive bundle, but he now has to launch into a hard sell just to get them to buy a single product.

"It seems like customers aren't as interested in spending money as they used to be," he said. "They ask more questions. They're on a budget and before it wasn't an issue."

Unless shoppers begin spending again, more stores could close, starting a domino effect that could ultimately cause some of the nation's favorite hangouts to go dark.

Some mall owners are cutting rents to try to keep their struggling clientele, while others have fallen into foreclosure. BayWalk, a mall at the center of a revitalization effort in downtown St. Petersburg, Fla., has been foreclosed on because of competition and slowing sales, and will go up for sale this month. It remains open. None of the about 1,500 malls in the U.S. have closed yet because of the recession, the International Council of Shopping Centers said.

David Simon, chief executive of Simon Property Group, said in a conference call with investors that closures are unlikely to be dramatic, "but I do think that there will be malls that close."

Typically, if a mall lost half its store tenants, it was unable to pay bills. Then it might shut down or redevelop into an office complex or other format. But many malls have taken on debt that requires fixed payments each month, making their threshold for survival much lower.

Neighborhood and community shopping centers already have a higher vacancy rate than their regional and so-called super-regional counterparts, putting them more at risk.

"We're seeing vacancy rates on the way up and rents on the way down," said analyst Kyle McLaughlin. "If they lose tenants or they have to decrease rents, they are in some serious danger of foreclosing and just going into trouble."

Already more than 7 percent of regional mall stores are vacant, according to data from Reis Inc. Community and regional shopping centers have a nearly 9 percent vacancy rate. Both figures are expected to rise through 2011, as the recession marches on.