Retail Bankruptcies Reshape Dining Experiences in Malls

Faced with declining foot traffic, shifting consumer preferences and the rise of mobile and e-commerce, retailers certainly haven’t had it easy in 2018. According to the latest Retail in the Red: BDO’s Bi-Annual Bankruptcy Update, more than a dozen retailers have filed for bankruptcy over the first half of 2018, and the rate of store closures remains high.
For those retailers in danger of a bankruptcy filing, closing underperforming stores is a popular lifeline strategy. And in many cases, stores located in malls are the first to go. As a result, vacancy rates at U.S. malls reached a seven-year peak this summer. According to real estate research firm Reis, the vacancy rate at regional and super regional malls reached 9.1 percent in the third quarter of 2018 – the highest rate the country has seen since 2011.
So, what does this mean for the restaurants that have long accompanied mall-based retailers? Are food courts on their way to becoming a thing of the past?
Fortunately, this doesn’t seem to be the case. Most restaurants aren’t fleeing malls – they’re simply updating their strategies to meet the ever-changing needs of consumers. For example, some mall-based restaurants are focusing on expanding their delivery capabilities in an effort to diminish their reliance on increasingly slow retail traffic. Menu discounts, loyalty membership perks, and engaging local customers through targeted marketing and social media can also help drive more diners through restaurants’ doors. 
In fact, in many cases, malls are attracting even more restaurants by replacing the spaces of shuttered retailers with modernized concepts – which often center around revamped dining options. For example, after losing its Sears store due to the retailer’s bankruptcy, New Jersey’s Ocean County Mall is replacing the space with a new, so-called “lifestyle center.” Aside from updated retail space, the center will make way for five new restaurants. Lifestyle centers, which integrate traditional retail with leisure amenities, are rapidly gaining in popularity as mall vacancies continue to climb.
Another emerging dining concept is “food halls”, where multiple restaurants open smaller stands within a larger “hall”. Today’s savvy consumers demand options, and malls have enough physical space to offer multiple dining options all within an easily accessible area. With unusually low failure rates, an increasing number of mall operators are betting food halls can successfully fill spaces left empty by shuttered big box retailers. 
More ambitious redesigns have introduced lodging amenities into malls. For instance, a shuttered department store at Phipps Plaza in Atlanta was replaced by a hotel. Another New Jersey-based shopping center, Monmouth Mall, was approved to incorporate a 700-unit apartment in its redesign. In such cases, the demand for diverse dining options will likely increase, as these restaurants will serve both shoppers and residents of their communities. 
As highlighted in BDO’s Retail in the Red report, the rate of retail store closures isn’t expected to slow down any time soon. Decreasing foot traffic in malls means that restaurants will continue to struggle unless action is taken. However, those that either reduce their reliance on mall traffic by offering delivery, or work to drive more foot traffic by adopting new concepts may view this as an opportunity for growth. As always, those that proactively adapt to consumer preference shifts will continue to not only survive, but thrive.
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