Friday, April 10, 2009


Shops provide positive externalities to each other. Both stores and restaurants like to be where there is good foot traffic from other restaurants and stores, and some stores like to cluster together (jewelers, and automobile dealers) to draw comparison shoppers who might not make the journey to a destination that had only a single shop. Part of the problem that towns face in nurturing thriving Main Street/downtown shopping districts is that it is hard to get the right mix when each commercial tenant negotiates separately with each landlord.

Malls--privately owned shopping centers--attempt to internalize this externality, and provide that right mix. (So, not all tenants of a mall have to pay the same rent per square foot; some tenants may provide traffic that raises the profitability of other tenants.) The marketplace designer is the mall owner, sometimes in negotiation with the tenants. (This is what led in Massachusetts to the Solomonaic judicial ruling that a burrito is not a sandwich, when Panera bread sued a mall claiming that the clause in its lease guaranteeing that it would be the mall's only sandwich shop was violated when the mall leased space to a burrito chain.

In the current recession, in which commercial real estate is hard to fill, malls are struggling to keep a mix of tenants who will draw traffic for each other: Malls Test Experimental Waters to Fill Vacancies . While some malls will fail, others may manage to bring new kinds of tenants (the article suggests wave machines and community colleges).

The stakes are high, since many malls are designed as easy-to-park-at destinations that must draw shoppers to them. If some shops go dark, malls will face the same kind of struggle as do less planned retail commercial neighborhoods.

1 comment:

michael webster said...

These may be useful points, depending on your reader's knowledge.

1. Percentage rent is the main way landlords profit from unequal traffic. As your gross receipts grow, so does your rent in a mall.

2. Most malls look for one or two anchor tenants.